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31 Mar 2015
Australia might see a 0.25% rate cut next week – Westpac
FXStreet (Barcelona) - Bill Evans, Chief Economist at Westpac, forecasts that RBA might cut rates by 0.25% in its April 7th meeting, and further explains that below trend growth in Australia might lead to another 50bps of cut.
Key Quotes
“it is currently forecasting that growth in 2016 will be 3-4% (based on only 50 bp’s of rate cuts). If it starts to lose confidence in that above trend forecast as a result of lack lustre growth in the second half of 2015 to a point where (as we saw last year) it is forced to forecast another “below trend” year of growth in 2016 then it will have to take further action.”
“That action would likely be, not the 25 bp’s currently embedded in market pricing, but another 50 bp’s along the lines of what we are seeing in the current cycle.”
“We can certainly see downside risks to the 3% + growth rate scenario for 2016 but at this stage are prepared to “go along” with a more optimistic outlook for 2016 than 2014 and 2015 (both around growth rates of 2.5%–2.75%) and forecast steady rates for the remainder of 2015 and beyond.”
“Consider the improved environment so far this year. The AUD averaged USD 0.90 in 2014 compared with USD 0.785 in 2015, to date. Mortgage rates will be 50 bp’s lower for most of 2015. The Westpac–MI Consumer Sentiment Index has lifted to 100 compared to an average of 96.5 in 2014 and we expect a modest lift in the world growth rate in 2016 from 3.5% in 2015 to 4.0% in 2016.”
“Of course risks around the labour market, asset markets, FED “normalisation” and commodity prices coupled with an acceleration in the downturn of the mining boom will continue to be headwinds for 2016.”
“For now, we are comfortable to continue to expect a rate cut next week of 0.25% to be followed by a period of stability marked by a clear easing bias.”
“That bias will be maintained until the Bank gets a more accurate insight into the sustainability of its current 3.5% forecast for growth in 2016.”
Key Quotes
“it is currently forecasting that growth in 2016 will be 3-4% (based on only 50 bp’s of rate cuts). If it starts to lose confidence in that above trend forecast as a result of lack lustre growth in the second half of 2015 to a point where (as we saw last year) it is forced to forecast another “below trend” year of growth in 2016 then it will have to take further action.”
“That action would likely be, not the 25 bp’s currently embedded in market pricing, but another 50 bp’s along the lines of what we are seeing in the current cycle.”
“We can certainly see downside risks to the 3% + growth rate scenario for 2016 but at this stage are prepared to “go along” with a more optimistic outlook for 2016 than 2014 and 2015 (both around growth rates of 2.5%–2.75%) and forecast steady rates for the remainder of 2015 and beyond.”
“Consider the improved environment so far this year. The AUD averaged USD 0.90 in 2014 compared with USD 0.785 in 2015, to date. Mortgage rates will be 50 bp’s lower for most of 2015. The Westpac–MI Consumer Sentiment Index has lifted to 100 compared to an average of 96.5 in 2014 and we expect a modest lift in the world growth rate in 2016 from 3.5% in 2015 to 4.0% in 2016.”
“Of course risks around the labour market, asset markets, FED “normalisation” and commodity prices coupled with an acceleration in the downturn of the mining boom will continue to be headwinds for 2016.”
“For now, we are comfortable to continue to expect a rate cut next week of 0.25% to be followed by a period of stability marked by a clear easing bias.”
“That bias will be maintained until the Bank gets a more accurate insight into the sustainability of its current 3.5% forecast for growth in 2016.”