Cash rate likely to drop to 0.75% — CBA

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Economists with the Commonwealth Bank of Australia (CBA) forecast the Reserve Bank of Australia (RBA) to slash the cash rate to 0.75% following an earlier cut this month to 1.25%.

The bank predicted cash rate to drop by 25 basis points in July rather than August, with another similar cut later in the year, most likely in November.

Senior Economist Kristina Clifton from CBA’s Global Markets Research team said non-monetary policy options are also needed to fuel the economy.

“The RBA has emphasised there is a need for other policy arms to step up to help lift economic growth and reduce unemployment, including more infrastructure spending as well as productivity-enhancing reforms,” she said.

CBA's economics team studied the alternative monetary policy of quantitative easing (QE) to stimulate Australia's economy earlier this month.

“While we doubt that the RBA will introduce QE in this economic cycle, the reality is that it could become a regular part of the policy tool kit in Australia as it is in other countries. This policy option could be used to stimulate economic growth and raise inflation if official interest rates are near the lower bound and other policy options have been exhausted,” said Stephen Halmarick, CBA’s head of global markets research.

ANZ also predicted rate cuts at the RBA’s next two monetary policy meetings. Minutes from the recent RBA monetary policy meeting, meanwhile, seemed to echo the forecasts.  Members of the board believed 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.


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