RBA likely to cut rates twice

By Gerv Tacadena | 07 Jan 2020

The wildfires raging across Australia could potentially slow the country's economic growth, boosting the calls for further rate cuts this year, a market watcher said.

BetaShares Capital chief economist David Bassanese told CNBC News that aside from the loss of lives and property, Australians need to brace for the economic impact of the bushfires.

"So possibly, from a macro perspective, it could have a negative impact on consumer confidence, which at the moment is very vulnerable — it's been the big drag on economic growth," he said.

Bassanese said the economic impact of the calamity could further strengthen the likelihood of further rate cuts by the Reserve Bank of Australia.

"Even before the fires, I thought they would cut another two times given the weakness of the economy," he said.

Also read: Is Now The Best Time To Refinance?

Based on his projections, the RBA could cut the rate by as early as next month, bringing it to another historic low of 0.5%. Another cut would bring the cash rate to an unprecedented 0.25%.

"Then we will have talks of quantitative easing measures, buying government bonds to lower longer-term interest rates, I think will be discussed in the second half of year," he said.

While the RBA expressed optimism about 3% economic growth by 2021, other market watchers say it needs to cut rates further to meet its employment and inflation targets.

Callam Pickering, an economist at Indeed, said the central bank's targets of a lower unemployment rate and higher wage growth are still "years away".

"A healthy and vibrant economy though needs a much broader base of growth. We need a strong household sector and greater investment from businesses. Much more needs to be done whether it be through further rate cuts, unconventional monetary policy or, in an ideal world, fiscal stimulus," he said in a series of tweets.

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