Analysts at NAB suggest that they have changed their view on the RBA’s cash rate, and has brought forward the timing of forecast rate cuts to start in June. 

Key Quotes

“We now expect the RBA to cut at the 4 June Board meeting and again in August. We also see a risk that the RBA delivers additional policy stimulus by early 2020, either by cutting again or opting for an alternative policy measure.”

“Yesterday’s labour force data provided further evidence that the economy is weaker than the RBA had expected.”

“With underlying inflation almost back at the multi-decade low reached in 2016, the RBA said in its May cash rate decision that “a further improvement in the labour market was likely to be needed for inflation to be consistent with the target”, where the Board would be “paying close attention to developments in the labour market at its upcoming meetings”. Given low inflation, continued weakness in the NAB business survey – where NAB’s internal indicators point to the weakness in spending becoming entrenched – and now higher unemployment, we think the Board will now act in June and that this is likely to be signalled in the May Board minutes and Governor Lowe’s speech on Tuesday.”

“The timing of a follow-up cut will depend on the flow of the data, but we have now brought forward the second cut to August, taking the cash rate to 1%.”

“We have previously noted that further policy adjustment may be required and we highlight the risk the RBA will deliver additional policy stimulus by early 2020. This could be in the form of a further rate cut, taking the cash rate below 1%, or consideration of an alternative policy measure to support the economy.”

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