RBA likely to cut Cash Rate by 25bp in August and November, says ANZ Research

The Reserve Bank of Australia (RBA) is expected to cut the benchmark Cash Rate by 25 basis point at its monetary policy meetings in August and November, taking the rate to 0.75 percent by end of this year, according to a recent report from ANZ Research.

Governor Philip Lowe’s speech on June 4 cane be interpreted as effectively a call to action for monetary policy. This and the increasing downside risks to the global economy have prompted a major shift in ANZ’s expectations for the RBA.

A key aspect of the speech was that “strong employment growth is not making material inroads into spare capacity in the labour market” and that “flexibility” around achievement of the RBA’s inflation target “is not boundless”.

The central bank can be further expected to see merit in spreading out its few remaining rate cuts so it can assess at least some of the impact – not least, around housing market sentiment. While the RBA thinks that the tightening in lending standards means the risks on the household debt front are “less than they were previously”, the Bank could be surprised about the reaction to lower interest rates.

"Further support for the economy is likely to be required in 2020, given the gathering global uncertainties. We think the Bank will likely reach for tools other than the cash rate, with explicit forward guidance the possible first choice. There is considerable uncertainty about this, however, given the varying approaches that other countries have taken to the zero bound for interest rates," ANZ Research further commented in the report.