It seems a fait accompli that the Reserve Bank will slash the cash rate by 0.15 per cent, but experts are divided on when it will happen.
Many are predicting the cuts will occur next Tuesday October 6, at the next RBA board meeting. That day also happens to be Budget Day, which is neat timing.
RateCity notes that 11 lenders, including the Commonwealth Bank, have axed their home loan rates and mortgage insurance over the past week, in preparation.
AMP Capital chief economist Shane Oliver says: “We continue to expect further easing by the RBA, probably at its October meeting so as to present a united ‘Team Australia’ front with the Federal Government.”
Westpac’s Chief Economist Bill Evans disagrees.
Last Wednesday, Westpac released a bulletin in which they forecast that the RBA was set to cut the overnight cash rate to 0.1 per cent; the three-year target bond rate to 0.1 per cent; the rate on the Term Funding Facility to 0.1 per cent; and the rate the RBA pays on Exchange Settlement balances to 0.01 per cent.
They also forecast that the RBA would commit to further purchases of Australian and semi government bonds in maturities between 5 and 10 years. They predicted that would all happen on Tuesday, October 6. But now, they expect it to happen on November 3.
“A central bank moving on Budget Day could be interpreted by the government and the bank itself as diverting attention away from the Budget and complicating the government’s task in ‘selling’ the Budget,” Mr Evans explained.
“So in the eyes of the authorities, there was probably a trade-off between a ‘Team Australia’ moment and the government having the clear air to sell its Budget without any distractions from other policy makers.
“We saw the package of measures in March (widely described as a Team Australia policy approach) as boosting confidence through the impact of the combined policies.
“Central banks are influenced by and aim to influence expectations.
“For our ‘Team Australia’ theme to have been viable we needed to see expectations and support for the concept build over the course of last week.”
Mr Evans explains that this hasn’t happened, and “consequently, we expect that the policy initiatives that we have outlined will now be introduced on November 3, giving the government adequate time to sell its Budget without any distractions coming from monetary policy”.