Cash rate cut predicted for next year

By Kay Rivera | 10 Dec 2018

Data from National Australia Bank (NAB) showed that financial markets and economists are predicting a decline in the cash rate in 2019.

In a report by Business Insider Australia, Tapas Strickland, market strategist at the NAB, confirmed the information.

“Ongoing uncertainty and softer tones from the RBA recently has seen the market start to price in a small chance of the bank cutting rates next year. The OIS [overnight index swap] market now prices a 16% chance of an RBA rate cut by August 2019, while further out the RBA is seen to be on hold throughout 2020," he said.

AMP Capital Chief Economist Shane Oliver shared a similar view, forecasting that the Reserve Bank of Australia would slash rates in the second half of next year.

While nearly all market economists currently predict that RBA's next decision on the cash rate will be a hike, the vast majority do not believe it will happen until 2020 at the earliest.

RBA Deputy Governor Guy Debelle recently hinted that the next move in the cash rate was still likely to be higher, but he also added that the bank was still prepared to offer policy support when needed.

“The Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off,” Debelle said. “But should that turn out not to be the case, there is still scope for further reductions in the policy rate. It is the level of interest rates that matters and they can still move lower.”

Debelle further said that the RBA can follow the footsteps of other central banks by borrowing from their playbook used in recent years – particularly the quantitative easing (QE) employed by the US Federal Reserve following the financial crisis.

“We have also been able to examine the experience of others with other tools of monetary policy and have learned from that. Hopefully, we won’t ever have to put that learning into practice,” he said. “QE is a policy option in Australia, should it be required.”

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