Australia: Risk of a further cut and a move to unconventional policy – NAB

NAB analysts have revised their forecast profile for the Australia’s cash rate, incorporating an additional 25bps cut in February 2020, following their prediction of a 25bp cut to 0.75% in November.

Key Quotes

“We see risk of a further cut and a move to unconventional policy should the government continue to hold off providing a more substantial fiscal policy package in the form of infrastructure spending, earlier tax cuts or cash handouts.”

“The national accounts data for Q2 confirmed another soft quarter of growth in the private sector – with the household sector particularly weak, but also weakness in business investment. Growth was supported by a strong boost from exports (LNG) and government consumption in the quarter.”

“Going forward, we broadly expect a similar pattern of growth. We expect the downturn in the dwelling investment cycle to continue, alongside weak household consumption growth. Business investment is expected to rise – including some growth in the mining sector – but there appears to be some downside risk to this forecast with both business confidence and conditions low.”

“Government infrastructure spending as well as general government consumption are expected to be key growth supports. The labour market is expected to deteriorate slightly, which will see wage growth remain weak and contribute to ongoing weak inflation outcomes.”