Macquarie sees interest rates at below 1 percent in 2017

Macquarie Securities, in a note to clients, has lowered its cash rate expectation to 1 percent, and its nominal 10-year bond yield forecast to below 2 percent.

Macquarie also downgraded its “year-end target on the ASX200 from 5900 to 5700” on the back of disappointing earnings expectations for 2016.

It believes the local currency will round off the year at around US67c.

Macquarie Group analysts believe the Reserve Bank will be forced to cut the cash rate three more times before the current easing cycle ends.

The group revealed its new outlook in a note yesterday saying its former risk case for a record low of 1 percent had now become its “base case” owing to more extreme inflation weakness than expected.

“We think that the RBA will have to cut the cash rate further, to at least 1 per cent, and have further delayed the timing of expected policy normalisation,” the note read.

“With little to differentiate Australia from other advanced economies, the risk lies with a slow and persistent grind to even lower rates.”

The group foresees just one more rate cut this year, likely in August, but expects a further two in 2017 in May and August.

A similar call came from JPMorgan last week, with its 1 percent forecast at the low end of the range among all other analysts.