No rate cut in March, but one more likely by June: HSBC’s Paul Bloxham

Larry SchlesingerDecember 8, 2020

The Reserve Bank is likely to hold off on cutting the cash rate until the second quarter of 2012, according to HSBC chief economist Paul Bloxham, who believes global weaknesses will dictate the RBA’s next move. 

“While we have long thought the Australian economy is in pretty good shape, we have been less comfortable about the global outlook. 

“And despite better global data recently, particularly in the US, and the recent rally in markets, we still remain somewhat sceptical. We still think global weakness and the flow on to the local economy will probably see the RBA cut a bit further. 

“However, a March cut now seems unlikely. We expect one more 25 basis points cut in the second quarter,” Bloxham says in his latest RBA Observer update. 

Bloxham points out that interest rate market pricing has shifted aggressively in the past three weeks – from pricing 75 basis points in cuts over the next year to pricing 45 basis points in cuts. 

Although he says “nothing should be ruled out” in the current uncertain environment, the “economy is still in pretty good shape, the mining boom is continuing and the RBA’s cuts last year are providing some support”.

On the other hand Bloxham expects a clutch of factors – higher mortgage rates, a very strong Australian dollar as well as an “further upward drift in unemployment” and “benign inflation” to motivate one more rate cut.

Bloxham’s comments come as RBA governor Glenn Stevens delivered his opening statement to House of Representatives Standing Committee today where, according to CommSec economist Savanth Sebastian, he made it clear that the “higher cost of wholesale funding and resulting out of cycle rate hikes by the domestic banks was anticipated by the Reserve Bank and was a key reason why interest rates were not cut in February”.

In his address Stevens said: “We repeatedly made clear that the shifting relationship between the cash rate and other [lending] rates in the economy is a factor the Board takes into consideration in setting the cash rate”.

“That will remain the case. Recent developments do not materially affect the capacity of monetary policy to achieve its goals.”

According to Sebastian, Stevens has “delivered the clearest message yet that the Central Bank has a strong degree of confidence in the outlook for the domestic economy”.

“The tone and comments from the testimony is consistent with CommSec’s view that the cash rate will remain on hold until at least the May meeting.”

 

 

 

  

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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