Central bank interest rate cuts can help stimulate a flagging economy by getting people to borrow and spend more. But with Aussie rates already at a historically low 1.5%, the Reserve Bank of Australia (RBA) doesn’t have much wiggle room left.
Or do they?
According to Westpac senior economist Bill Evans — who back in February was the first top economist in Australia to predict two rate cuts this year — the Reserve Bank will go beyond previous notions by slashing the cash rate by three times before the end of 2019.
On Friday, Evans said he now believes the central bank will head further into unfamiliar territory as it cuts the 1.5% interest rate.
Interest Cuts keep on coming
He is also predicting cuts from August and November to June and August.
Governor Philip Lowe’s subsequent comment that a June cut was on the table, led Evans to think there could be a 0.25 percentage point reduction in November.
‘Our central forecast for the terminal cash rate in this cycle is 0.75 per cent with risks to the downside,’ Mr Evans said.
‘We would certainly see 0.5 per cent as the floor for the cash rate, with QE (quantitative easing) a more effective policy tool thereafter.’
But in order to achieve the 0.75%, he said Australia’s housing market would have to stabilise, as well as a supported confidence boost from a steady government ready to nature genuine reform.
Trade conditions would also have to be better established than previously assumed in budget estimates, and for mounting trade tensions to cool off.
Australian dollar set to sink after interest rate cuts
Hours after Evans’ forecast, Besa Deda, chief economist at Westpac-owned St George, also included a cut of 0.25% reductions in June and August, to her existing thesis.
Many are wondering if this news will trigger more economists to update their forecasts on interest rates.
Both Evans and Deda are predicting a falling Australian dollar, to 66 US cents by the end of 2019.
According to AAP, the Australian dollar was worth 68.56 US cents just prior to Evans’ note was released.
It appears as though the walls are closing around the RBA, and for the majority of Australian’s it’s unclear where we go from here.
Or whether that number reach zero?
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