RBA will cut to 0.75%: Westpac economist

The Reserve Bank will go further than previously thought by cutting the cash rate not two, but three times before 2019 is over, according to a leading economist.

Westpac senior economist Bill Evans, who in February became the first top economist from Australia’s big four banks to predict two rate cuts this year, said on Friday he now believes the central bank will go further into uncharted territory as it cuts from the long-standing record low of 1.5 per cent.

Mr Evans, who on Tuesday brought forward his prediction for cuts from August and November to June and August, said Governor Philip Lowe’s subsequent comment that a June cut was on the table led him to believe there will also be a 0.25 percentage point reduction in November.

Mr Evans, whose revised prediction was followed by a 0.3 per cent fall in the Australian dollar, expects the cash rate to stay at 0.75 per cent through 2020.

“Our central forecast for the terminal cash rate in this cycle is 0.75 per cent with risks to the downside,” Mr Evans said.

“We would certainly see 0.5 per cent as the floor for the cash rate, with QE (quantitative easing) a more effective policy tool thereafter.”

For the rate to stay at 0.75 per cent, Mr Evans said the housing market would have to stabilise and there would need to be a sustained confidence boost from a stable federal government in a position to embrace genuine reform.

He said the terms of trade would also have to hold up much better than assumed in budget estimates, and for global trade tensions to ease.

Besa Deda, chief economist at Westpac-owned St George, followed suit hours later, adding a November cut to her existing thesis for 0.25 per cent reductions in June and August.

Both predict the Australian dollar will fall to 66 US cents by the end of the year.


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