RBA could cut rates in H2

Derek Rose
(Australian Associated Press)


National Australia Bank economists can no longer foresee a time when the Reserve Bank of Australia might hike the cash rate, joining those who believe there could be a rate cut before the end of this year.

The economists said they no longer expected the RBA to hike rates in late 2020, a prediction they made late last year.

“We … now expect the cash rate to remain on hold over the forecast horizon,” the bank’s economists wrote in a research note released on Tuesday.

“While our central case is for the cash rate to remain on hold, based on the balance of risk, the next move could well be down – potentially as soon as H2 2019.”

The RBA has kept rates at a record low 1.5 per cent since August 2016, but last week shifted from a bias toward rate hikes to a more neutral stance.

The NAB economists said signs pointed to weakness in the Australian economy, especially in retail spending as consumers face significant issues.

“In particular, we see ongoing slow wage growth, falling savings rates, high debt levels and falling house prices as ongoing headwinds,” NAB said in a note authored by chief economist Alan Oster, global head of research Ivan Colhoun and senior economist Gareth Spence.

NAB’s team joins an Increasing number of economists flagging a potential rate cut this year, with many having suggested the move long before the RBA downgraded its economic forecasts.

“Our forecasts raise the question as to why the RBA would not move to give the economy some further support,” they said.

The trio predicted wage growth to increase gradually but only expected only modest decreases in unemployment, and forecast house prices to keep declining in Melbourne and Sydney, “but to do so in an orderly fashion”.

Meanwhile, NAB’s monthly survey of 400 firms, released on Tuesday, found that business confidence remained below average despite edging up in January after falling sharply in December.

NAB said its business survey found that confidence was weakest in Victoria and NSW, and higher in SA and WA.

“While we don’t think activity in the business sector has crashed, we think that there has been some loss in momentum,” Mr Oster said, especially among retail businesses.

“Car sales and household goods continue to show the weakest and falling conditions in our survey – this is consistent with the broader macro story at present.”


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