Australia due for further rate cuts, says AB

Australia due for further rate cuts, says AB

Australia can expect the central bank to make further cuts to the official cash rate in the coming months despite small increases to GDP growth in the fourth quarter, says AB.

AB (formerly known as AllianceBernstein) senior economist for the Asia Pacific Guy Bruten said Australia’s GDP experienced a growth of 0.5 per cent in the fourth quarter, but highlighted while this makes everything seem ok, “beneath the surface” it is a very different story.

Mr Bruten pointed out that factors such as increasing levels of unemployment and the influence of the commodity downturn is giving reason for the RBA to make further cuts to the cash rate.

“In our view, these trends are set to continue – and perhaps worsen – over the year ahead,” Mr Bruten said.

“Business capital spending remains under massive downward pressure. We’ve known about the impending downturn in mining capex for what seems like forever. But it’s really from here that the full brunt of the decline will be felt.”

“This is the backdrop that forced the Reserve Bank of Australia’s (RBA) hand in February, after 18 months of sitting on the sidelines. That is, the rate cut was much more a domestic story than a reflection of concerns around the plunge in oil prices,” he said.

Mr Bruten also said while the RBA left rates unchanged at 2.25 per cent at its March meeting, the “easing bias” remains very clear.

Citing the RBA, Mr Bruten pointed to a comment made by the central bank which said “further easing of policy may be appropriate in the period ahead”.

“Continue to expect the RBA to ease again in either April or May, and (following the latest in central bank “trends”) to offset the potential adverse effects with some aggressive macroprudential tightening,” Mr Bruten said.


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