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Majority of experts predict October rate cut

— 1 minute read

The Reserve Bank is likely to cut the cash rate to a new record low of 0.75 per cent if not in tomorrow’s meeting, by November, according to a number of experts.

The latest Finder RBA Cash Rate Survey has found 55 per cent, or 25 of 45 experts and economists it queried expect the cash rate to drop from its current historic low of 1 per cent to 0.75 per cent.

Three-quarters of experts (73 per cent) have predicted at least one cut will happen by November, following the two cuts that have already occurred this year.

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The current rate was implemented in July as the second in two consecutive cuts.

With there being potential for three rate reductions in 2019, around 13 per cent of experts in Finder’s survey believe there will be a fourth slash by the end of the year. 

Five economists stated they expect the rate to fall to 0.25 per cent, while one predicted the rate will reach 0 per cent.

Last week, RBA governor Philip Lowe hinted at the prospect of a third rate cut in 2019 amid sluggish economic growth and global market uncertainty, in light of central banks cutting rates globally. 

The Fed had its second rate cut for the year earlier this month, taking the US cash rate down by 0.25 per cent to a range of 1.75 per cent to 2 per cent.

Shane Oliver, head of investment strategy and chief economist at AMP Capital has sided with the RBA deciding on an October rate decrease.

“Growth remains subdued, the risks to global growth have increased, unemployment and underemployment are trending up and this will make it harder to get wage growth and inflation up,” Mr Oliver said.

“So the RBA will need to respond with more monetary stimulus.”

Economist and former MP Craig Emerson added: “Global interest rates are falling and the RBA won’t want the Australian dollar to depreciate.”

However, the other 45 per cent of experts who voted against an October cut said the RBA were likely to hold the rate for another month, to wait for more data on the tax cut and house prices before acting. 

Matthew Peter, chief economist at Queensland Investment Corporation said the RBA is reluctant to drive the cash rate to its lower bound. 

“Dr Lowe will resist pressure from the federal government to cut rates on the inflation outlook alone,” Mr Peter said.

“The RBA will cut rates if the labour market or growth outlook deteriorates.”

Graham Cooke, insights manager at Finder, said 2020 could be the year of a negative cash rate, quantitative easing, or both. 

“As the RBA cuts the cash rate close to zero, they are slowly diluting their power. An injection of cash may be the only option to stimulate the economy,” Mr Cooke said.

“This comes on the back of [RBA governor] Philip Lowe saying last month that ‘unconventional’ options may be used if the economy warranted it, which seems to include both the potential of quantitative easing and a negative rate. 

“We are looking at uncharted waters for Australia.”

 

Majority of experts predict October rate cut
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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