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First rate cut of the new year not far off

Frank Uhlenbruch
Sarah Kendell
08 January 2020 — 1 minute read

The Reserve Bank is likely to cut rates again in the first few months of 2020, with a second cut possible depending on the outcome of the May federal budget, according to Janus Henderson.

The fund manager’s Australian fixed interest investment strategist, Frank Uhlenbruch, said the most recent economic figures did not look strong enough to prevent another rate cut from the RBA.

“With forward labour market indicators softening and private final demand slightly negative, we think on balance the RBA will ease again before the next federal budget in May 2020,” Mr Uhlenbruch said.

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“While the government has reiterated its desire to get the budget in surplus and hosed down expectations for bringing forward personal tax cuts, what it actually delivers on budget night will determine how much more work the RBA has to do.”

Mr Uhlenbruch said he believed the government would err on the side of providing stimulus to the economy, but if that did not occur, the cash rate could be cut again later in 2020.

“We suspect the government will deliver modest fiscal stimulus aimed at boosting near-term demand and that will mean the RBA will maintain the cash rate at 0.50 per cent, with an easing bias for an extended period,” he said.

“A failure to provide any stimulus would put more pressure on the RBA, with the cash rate likely to fall to 0.25 per cent in the second half of the year, and raise expectations for unconventional monetary policy measures.”

Mr Uhlenbruch added that while it was possible the RBA could hold the cash rate at 0.75 per cent to support savers and signal confidence in the economy, it was unlikely, particularly given that such a stance could see the Australian dollar appreciate and affect export competitiveness.

First rate cut of the new year not far off
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