NAB pushes next rate cut out to February 2020: NAB's Alan Oster
EXPERT OBSERVER
We have pushed out our expected timing of the next cash rate cut by the RBA to February 2020, where we expect a further reduction of 25bps to a new low of 0.5%.
It is at this level of the cash rate where the RBA has previously stated it would outline a ‘package’ of unconventional policies if further monetary easing is required to support growth, full employment and the return of inflation to target.
The RBA Governor is speaking on “Unconventional Monetary Policy” on November 26th.
To be clear, we think that the RBA should actually provide a further interest rate cut next month with private sector growth remaining weak and little evidence to date that prior easing or the tax rebates has done enough to offset the weakness in the economy.
However, for now, the RBA appears to be in a holding pattern, while it assesses the impact of prior rate cuts and ‘the gentle turning point’.
We see an improvement in growth over time but not to a sufficiently strong rate of growth to prevent the unemployment rate beginning to rise.
At the same time, the Government does not seem to be inclined to provide material fiscal stimulus in the near term, which increases the need for the RBA to ease further (including a further rate cut and unconventional policy) should our forecast of a deteriorating labour market materialise.
Growth looks to have remained weak in Q3, with our expectation for quarterly growth now 0.3% (1.5% y/y) – a small slowing from the previous two quarters. This deterioration comes despite the support provided by tax cuts which look to have provided little offset to the weakness in consumption with retail sales declining in Q3 – though it is likely too early to see the impact of recent rate cuts.
Further out we have broadly maintained the shape of our growth forecasts.
ALAN OSTER is the NAB Group Chief Economist
