RBA to cut the cash rate to 0.75% by November - Westpac

Bill Evans, chief economist at Westpac, points out that Westpac is now forecasting three cuts in 2019 in June; August and November to push the cash rate from 1.5% to 0.75% and to hold at that level through 2020.

Key Quotes

“Our forecasts for employment; wages growth; economic growth ; inflation and conditions in the housing market  are consistent with the need for  policy to ease  through the full course of 2019, not to go on hold as early as August.”

“We see the unemployment rate drifting up to 5.4% by year’s end; economic growth at 2.2% for 2019; underlying inflation at 1.4%; and the housing market still weak although approaching stability.”

“That means that the June and August cuts should be supported by a further cut in November.”

“Looking into 2020 we expect that the case for policy easing could still be apparent but as rates go lower and time passes the option to use QE will become more attractive. Arguably the RBA may see our current forecast of 0.75% as the base or possibly as low as 0.5%. Beyond 0.5% QE seems to be the more effective policy if further easing was required.”

“Consequently our central forecast for the terminal cash rate in this cycle is 0.75% with risks to the downside, although we would certainly see 0.5% as the floor for the cash rate, with QE a more effective policy tool thereafter.”