Big bank forecasts "multiple rate cuts"

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ANZ recently forecasted rate cuts at the next two monetary policy meetings of the Reserve Bank of Australia (RBA).

"The RBA seems to be in a hurry to get the cash rate lower," ANZ economists said. "Following this week's RBA Minutes and a speech by Governor Lowe, we have brought forward the expected rate cuts to July and August.”

ANZ was the first major bank to predict that RBA will lower cash rates in the upcoming meetings. The forecast came after the central bank released its minutes from the monthly board meeting nearly three weeks. The Reserve Bank board members said more declines in the cash rate are “more likely than not” to come.

Minutes from the RBA showed members believe that more cuts would probably be required in addition to June's 0.25% slash as the central bank tries to fuel sluggish economic growth.

"After August, we think the RBA will pause for a period. It is our expectation that the combination of lower interest rates, a much flatter yield curve (driven in part by the forward guidance the RBA is already effectively providing), and a lower Australian dollar and tax cuts will provide the boost the economy needs to get back onto a growth path that will push the unemployment rate lower over 2020," ANZ economists said.

The Reserve Bank said it cut interest rates earlier in June not because the economy became worse but because it could improve. The bank's governor also hinted that it is ready to cut rates again.

"It is not unrealistic to expect a further reduction in the cash rate as the board seeks to wind back spare capacity in the economy," Governor Philip Lowe told the public.

 

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