As Australia’s economy slows, predictions of a rate cut rise: Reuters poll By Reuters

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© Reuters. A man smokes next to the Reserve Bank of Australia headquarters in central Sydney


© Reuters. A man smokes next to the Reserve Bank of Australia headquarters in central Sydney

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By Swati Pandey

SYDNEY (Reuters) – Predictions that Australia’s central bank will lower interest rates this year have increased significantly in recent weeks, a Reuters poll showed, as a steep downturn in the housing market is seen likely to further hit domestic activity.

The Reserve Bank of Australia (RBA) has shifted away from its long-held tightening bias and put rate cuts back on the table.

However, it is still confident about the A$1.9 trillion economy, which has avoided a recession since the early 1990s.

Awaiting a pick-up in inflation and further falls in the jobless rate, the RBA has left policy at a record low 1.50 percent since its last easing in August 2016. And this record period of holding is likely to stretch into early 2021, according to the median view of 45 economists polled by Reuters.

Still, 20 economists – 44 percent of the total polled – forecast at least one cut to the cash rate in 2019, double the percentage predicting that in the February poll.

Two of Australia’s major banks – Westpac and NAB – – as well as Macquarie, Perpetual and AMP are tipping cuts this year, as are UBS, JPMorgan (NYSE:) and Nomura.

Of the 30 economists who gave a forecast for March 2021, nine saw at least one rate rise while 14 predicted at least one cut by then. The other seven expected no rate change.

The change in 2019 outlook follows disappointing fourth-quarter gross domestic product data this month while retail sales – a gauge of consumer health – have remained tepid.

Data this week showed Australian consumers have turned gloomy while a closely-watched measure of business conditions slipped below the long-run average in February.

The dismal reading on the economy, coupled with the U.S. Federal Reserve’s “patient” policy approach have led markets to fully price in at least one RBA rate cut by August..

Macquarie economist Justin Fobo said a rate cut is needed to stimulate the economy as there were no downside risks to easing policy with the housing market already on a slippery slope and banks tightening lending standards.

“Take the path of least regret,” Fobo said in a March rate outlook report.

“If additional policy support is necessary then it should be provided – best to provide it early than have to take more drastic action if growth actually turns down sharply.”

The RBA has repeatedly underlined the limits of further easing when the policy setting is already “stimulatory” while recently noting the success fiscal stimulus has had during the 2008 global financial crisis.

Australia’s center-right government will deliver the federal budget on April 2. It is expected to announce personal income tax cuts and infrastructure spending ahead of general elections due in May.

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