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RBA to cut cash rate to 1.5%, says ANZ

RBA to cut cash rate to 1.5%, says ANZ

ANZ expects the Reserve Bank to reduce the cash rate by a further 50 basis points next year, taking it to 1.5 per cent.

In a recent research update co-authored by ANZ chief economist Warren Hogan and senior economist Justin Fabo, the bank said that while pinpointing the timing of the cuts is tricky, it is “pencilling in” 25-basis-point cuts in February and May.

“Since the [Reserve] Bank cut the cash rate by 50 basis points earlier this year, we have consistently characterised the risks as being towards further monetary policy easing at some stage. We are now making that our central case,” ANZ said.

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The big four bank said its change of view has largely been driven by two factors along with its judgement that growth will not be sufficient over 2016 and 2017 to eat into spare capacity in the economy.

“First, we recently downgraded our global growth forecasts to ‘more of the same’ from previously expecting a modest pick-up,” it said.

“Secondly, while current momentum in Australia’s non-mining economy is sufficient to keep the RBA ‘content’ this year, we see waning support to non-mining growth from housing market activity and the sharply lower AUD next year.

“Governor Glenn Stevens has previously noted that growth in the non-mining economy needs to be above average for a couple of years to eat into spare capacity – at best, it is currently around average with little prospect of improving much in our view.”

RBA to cut cash rate to 1.5%, says ANZ
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