Westpac chief economist Bill Evans has revised his prediction for an October rate cut, saying the RBA will wait and see rather than going big for a “Team Australia” moment on budget day.
Mr Evans now believes the RBA will make its move in November despite saying the RBA waiting to assess the budget “is not appropriate for these unique times”.
“A central bank moving on budget day could be interpreted by the government and the bank itself as diverting attention away from the budget and complicating the government’s task in ‘selling’ the budget,” Mr Evans said.
“The governor himself, who has been such a strong proponent of fiscal policy, may also see the advantages of allowing space for the government to promote its budget.”
Mr Evans conceded that central banks “are influenced by and aim to influence expectations” and that support for an October rate cut had not built in the days since deputy governor Guy Debelle’s speech and Westpac’s own note on the matter.
“Admittedly, the choice of budget day to announce a series of further monetary stimulus steps was without precedent (the budget is usually on the second Tuesday of the month and the RBA board meeting is on the first Tuesday of the month),” Mr Evans said.
“But the current crisis is without precedent as the blowout in the budget deficit from $1 billion in 2028/19; to $85 billion in 2019/20; to an expected $230 billion in 2020/21 testifies. The timing of the key speech from Deputy Governor Debelle, from our perspective, pointed to the October timing.”
However, Mr Evans believes the RBA will not lower its 7 per cent unemployment forecast by 2022 as a result of the contents of the budget and that the bank will still announce a slew of policies – including cutting the overnight cash rate to 10 basis points (0.1 per cent), adopting a 10 basis point three-year bond target, and adjusting the rate on any new drawdowns of the Term Funding Facility to 10 basis points – at its meeting on 3 November.
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