Westpac tips February rate cut

Westpac chief economist Bill Evans has joined the Commonwealth Bank and ANZ by forecasting the Reserve Bank will cut the cash rate for the third consecutive time when it next meets on February 7. 

A third rate cut would take the cash rate back to the 4% last seen in March 2010. 

Evans says the minutes of the RBA’s December monetary policy meeting indicate that the key theme “was the concern that sovereign credit and banking problems would weigh heavily on economic activity in Europe, which continued to pose downside risks to the global economy and, consequently, Australia”. 

“There was also further recognition of the mixed outlook for Australia with housing; consumers; and employment all looking subdued. 

“On the other hand business investment, particularly mining, looked robust. With prospects for Europe steadily deteriorating and the interest rate sensitive parts of the economy remaining weak we believe there is ample scope for a further rate cut in February,” Evans says.

In addition to the February rate cut expectation, Westpac is forecasting one more interest rate cut in 2012, in line with its prediction of a 100-basis-point rate cut cycle, which kicked off in November.

Evans made his prediction following publication of the annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future. It was 2.6% in October 2011, below its long-term trend of 3%.

“It appears that the boost to above trend growth we saw in July and August has quickly faded and the ‘around trend’ story which has been generally the case since the beginning of 2011 is now appropriate,” says Evans. 

Westpac is forecasting growth in 2012 of 3% – slightly below trend growth for the economy.

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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