RBA may not cut rates until May: Commonwealth Bank

Larry SchlesingerDecember 8, 2020

Borrowers may have to wait several months for another rate cut, says the Commonwealth Bank.

CBA chief economist Michael Blythe expects that the RBA may cut rates again in May, as “the risks lie with an earlier move”.

Blythe says the RBA’s Statement on Monetary Policy made it was clear that “risks in Europe are still skewed to the downside” and that there “differences between domestic sectors”

“So if ‘demand conditions weaken materially’ there is ‘scope’ for easier monetary policy,” he says.

“Financial markets will continue to price in further rate cuts and the debate between economic commentators will lean in that direction as well.

“The terminal cash rate will depend mainly on how the European story evolves.  While that story is evolving the need for lower rates will be debated at every RBA meeting.  But a trigger is required.

“There are plenty of potential flashpoints.  Significant quantities of Italian, Spanish, Portuguese and Greek debt are due to mature over the February?April period.  Negotiations over Greek debt and a second bailout package need to be finalised soon.

“These events are risks and not part of baseline forecasts.  As a result, we have pushed back the timing of the next move to May, when we have a 4% cash rate pencilled in.  The risks lie with an earlier move,” he says.

HSBC chief economist Paul Bloxham says the bank still expects further cuts from the RBA “given the global downside risks” with a cut forecast in March and one more in the second quarter of the year.

Bloxham says Friday’s Statement on Monetary Policy will help “elucidate” the RBA's thinking on today's decision.

Today’s statement, Bloxham says, “suggested that while the risks in Europe remain 'skewed to the downside' the 'acute financial pressures on banks in Europe were alleviated considerably late in 2011 by the actions of policymakers'”.

“Overall, they suggested that 'should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy.' Clearly, they will be watching the global risks very carefully,” he says.

Westpac chief economist Bill Evans expects a 0.5 percentage point cut in the cash rate over the course of the first half of this year despite today’s decision. 

“While the case set out by the bank does not provide strong encouragement to expect a cut in March,  we believe that over the course of the next month the case will be sufficiently strong to justify another cut. Indeed it is our view that the case has already been established,” Evans says.

 

 

 

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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