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Budget day cut still up in the air

Lachlan Maddock
— 1 minute read

The chances of a rate cut in October or November remain up in the air despite a number of high-profile economists calling it.

Finder’s monthly cash rate survey found that only 40 per cent of economists surveyed are expecting another rate cut this year, with 15 per cent calling it for October and 25 per cent forecasting a November cut. 

“The RBA seems to be coming around to our view that the pandemic will result in a sharp slowdown in wage growth and inflation,” said Ben Udy of Capital Economics.

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“We think that announcing more support alongside the budget would send a strong ‘Team Australia’ message and have pencilled in a cut in the cash rate target, the three-year yield target, and the TFF interest rate to 0.10 per cent at the bank’s October meeting. We also expect the bank to announce more bond purchases next week.”

But others are uncertain that a micro-cut to 10 basis points would even accomplish anything aside from showing that the RBA is paying attention to the economic situation. 

“While there is some possibility of a further reduction, this remains unlikely with a focus on the role of fiscal rather than monetary policy to support economic growth,” said Angela Jackson of Equity Economics. 

“Such a decrease is unlikely to have a meaningful impact on growth at this point and would limit any future expansionary firepower.”

Westpac chief economist Bill Evans recently made headlines by predicting a budget day cut before walking that prediction back. 

“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.”

 

Budget day cut still up in the air
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