Australia: Significant policy easing keeps proving necessary - Westpac

Westpac analysts point out that this week has brought a double policy benefit to Australia in the form of a cut in the cash rate from the RBA and the passage of the Federal Government’s tax plan.

Key Quotes

“Data has however highlighted that such support remains a necessity.”

“In justifying their decision to cut for a second time in as many months to a new historic low of 1.00%, the RBA again focused on Australia’s labour market and the need for it to strengthen. Unemployment and underemployment both remain well above the levels the RBA see as consistent with full employment. Hence, if wages growth is to accelerate, GDP growth must rise back to trend or above and labour market slack be reduced.”

“While the RBA looks set to hold onto their expectation of trend growth in 2020 for now, by November we believe they will have to revise this forecast down and, in doing so, will justify another cut.”

“The risk to this view is that two rather than one cut is necessary by year end, and subsequently that the RBA may have to investigate the other policy options available to it.”

“Data released for Australia the week highlight the need for further support for our economy. Retail sales rose a disappointing 0.1% in May to be essentially unchanged over two months.”

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