Low cash rate could persist until 2023

By Gerv Tacadena | 30 Apr 2020

The Reserve Bank of Australia is likely to hold the record-low cash rate of 0.25% until the end of 2023, according to the latest forecast by Westpac.

Bill Evans, chief economist at Westpac, said it is unlikely for the RBA to meet its unemployment target, particularly with recent shutdowns due to the economic impact of the COVID-19 outbreak.

"These forecasts are based on the Bank's central outlook for the policy response to the Covid Crisis whereby domestic shutdowns are gradually eased through the June and September quarters and 'mostly removed by late in the year'," Evans said in a think piece in Property Observer.

Evans said the RBA's forecasts are "broadly in line" with Westpac's, particularly in terms of the economic growth for the first half of 2020, which is expected to decline by around 9.5%. The unemployment rate is expected to hit 9% by the end of June.

For the whole year, Westpac projects the economy would contract by 5%.

Also read: Low Rates Poised To Buoy Prices

However, the RBA expects the economy to grow by 6% to 7% in 2021, significantly higher than Westpac's 4% forecast.

"That bullish view is despite the observation that the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come," Evans said.

Still, Evans said the RBA will likely remain an "effective force" in the policy debate through its management of the three-year bond-yield target.

"The choice of the three-year bond-yield target rate as the same as the cash rate target is strategic since it sends a clear message that if the central bank is prepared to purchase three-year bonds at the overnight cash rate, it is reasonable to expect that it is comfortable with the cash rate holding at 0.25% for the full three years," he said.

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