Westpac chief economist Bill Evans believes the RBA will cut the overnight cash rate to 10 basis points (0.1 of a percentage point), adopt a 10 basis point three-year bond target, and adjust the rate on any new drawdowns of the Term Funding Facility to 10 basis points.
“The prospect of the RBA ‘sitting back’ to assess the budget, which has been seen as the ‘norm’ in previous years, is not appropriate for these unique times,” Mr Evans said.
Both RBA governor Philip Lowe and deputy governor Guy Debelle have hinted at the possibility of further rate cuts. In a speech in July, Mr Lowe said that the board “has not ruled out future changes” while Mr Debelle gave an “open-ended” assessment of adjusting the structure of rates in the economy in a speech to the Australian Industry Group.
“It is reasonable to link these two commentaries together to conclude that the board is now ready to take the next step as described by the governor on July 21,” Mr Evans said.
“And note that since the governor’s speech, the minutes to the September board meeting have included a ‘new’ concept — ‘The board agreed to maintain highly accommodative settings as long as required and to consider how further monetary measures could support the recovery’.”
Mr Evans believes the shortfall in employment will be the primary driver of the RBA’s decision, with restoration of the full employment rate likely to be “in the far distant future”. That sentiment was echoed by NAB Group chief economist Alan Oster, who sees another cut coming either in October or November.
“While NAB remains of the view that further monetary easing will have only marginal impact on the economy, the RBA continues to signal that it will do what it can to support the recovery… Fiscal policy also continues to be well placed to support the recovery, and further measures are expected to be announced on this front in the budget on October 6,” Mr Oster said.
