Industry foresees further rate cuts in Feb 2020

Ahead of the Reserve Bank of Australia’s (RBA) monetary policy decision, to be announced later today (5 November), industry stakeholders and economists believe the central bank will hold off on another rate cut, for now.

However, international economic policy, particularly recent cuts to the US Federal Reserve, threaten to undermine the work of the RBA towards full employment, suggesting that further cuts to the official cash rate are looming.

According to the latest RBA Cash Rate Survey, conducted by Finder, all of the surveyed respondents are expecting the RBA to hold the official cash rate at 0.75 per cent in November, although a majority expect another cut to occur over the next few months.

The survey, which included responses from 38 economists and financial industry representatives, found that nearly two-thirds of experts expect the cash rate to drop to 0.50 per cent in February 2020.

One-fifth predict the 25 basis point rate cut to be applied earlier, at the RBA’s December meeting.

Mortgage Choice CEO Susan Mitchell said improved unemployment figures in September provided enough breathing room for the RBA to hold off on a further cut.

“The latest economic data is enough to put the breaks on the RBA’s cutting spree for now,” Ms Mitchell said.

“That being said, the Consumer Price Index undershot the RBA’s target range – growing 0.5 per cent over the September quarter, lifting the annual rate to 1.7 per cent – which builds the case for further monetary policy stimulus in the short-term.”

Graham Cooke, insights manager at Finder, said that despite the rate falling from 1.50 per cent in May to a predicted 0.50 per cent by February 2020, the general consensus is that the RBA’s cuts have had little impact on the economy thus far.

“We’ve seen multiple references to the RBA ‘firing blanks’ with these cuts and running out of bullets in the process,” Mr Cooke said.

“If true, it’s hard to believe that flogging the same horse will produce a different result.

“The RBA has not spoken fondly about negative interest rates in other countries, so I’d expect extra cash to be printed before we see a zero or sub-zero cash rate.”

The recession question

While stakeholders are not preparing for a recession, consumers appear to be, according to Finder.

Experts and economists see the possibility of an imminent recession to be unlikely, with just 9 per cent of those surveyed stating one is likely to occur.

However, according to the Finder Consumer Sentiment Tracker, a monthly survey of over 1,000 consumers, 50 per cent of Australian consumers anticipate Australia to go into recession within the next 12 months.

This high level of economic anxiety is likely to be the reason why so many consumers are holding back from spending, choosing instead to pay down debt and hold money in savings, and remains consistent with ongoing low levels of consumer sentiment.

Mr Cooke said there is recession talk ‘at large’, both domestically and internationally. 

“While slow wage growth and underemployment seem like cause for concern for consumers, Australian economists can see the light at the end of the tunnel,” Mr Cooke said.  

“Market behaviour is hugely driven by psychology and we need to be careful not to talk ourselves into a recession.”

Despite expert opinion on a looming recession, economic sentiment among economists is also trending downwards, according to Finder.

[Related: Fed cuts again, could ‘offset’ RBA easing]