Economists expect interest rate cut on May 7 2019 – more Interest Rate cuts likely

Numerous economists now feel at least one rate cut by the RBA next month and two this year.

An excerpt from the ABC News (April 25) stating that both the ANZ and CBA predict an interest rate cut by June. Based on the RBA thoughts on low inflation. potentially increasing unemployment  (based on job vacancies) and the overall reaction to Australian Dollar (which is a good a barometer of the what the markets expect rates to do) as being as strong signal rates will drop, many other economists tip a rate cut as early as the next RBA meeting on the first Tuesday in May.

The BIG question – how much of the cuts will the Big Four pass on to their Home Loan and Investment Home clients ?

The ABC Article includes :

Australian money
“The Australian dollar has fallen sharply to a seven-week low, as the chances of the Reserve Bank cutting interest rates next month have surged.

At 7:10am, the dollar was buying 70.1 US cents.

It was a significant drop from its value on Good Friday (71.5 US cents).

The currency’s sell-off was sparked by yesterday’s weak consumer price index (CPI) — with the figures revealing that core inflation (at 1.4pc) had drifted to its lowest level in at least 16 years.

Inflation has now been stuck below the Reserve Bank’s 2-3 per cent target band for three years.

Last week, the RBA said it would be “appropriate” to cut rates if unemployment rose and inflation “did not move any higher”.

Job vacancies data released yesterday by the Commonwealth Department for Jobs and Small Business showed the biggest monthly fall in employment ads for six years, which generally foreshadows a rise in the unemployment rate.

Two rate cuts in 2019

These latest developments have led to analysts from Australia’s major banks upgrading their rate cut expectations.

“The downward surprise to core inflation in the first quarter leaves the RBA with little choice but to cut the cash rate by 25 basis points at its May meeting,” ANZ economists Hayden Dimes and David Plank wrote in a note.

They also both expected a second rate cut to happen in August.

Australia’s central bank has kept rates on hold at the record low 1.5 per cent for the past two-and-a-half years.

But if the RBA slashes rates twice in 2019, the official cash rate would fall to 1 per cent.

Meanwhile, Commonwealth Bank’s Elias Haddad said market expectations of the RBA cutting rates next month soared to 64 per cent — despite the federal election being held in the same month.

“Swap market pricing for a 25 basis point RBA policy rate cut surged from 10 per cent to 64 per cent in May,” he said.

But Mr Haddad believes the widely-expected rate cut will happen in June — with a second cut to happen by the end of this year.

“A 25 basis point RBA rate cut in June is fully priced and a second 25 basis point cut is priced by the end of 2019,” he said.

“We have removed the rate hike we had pencilled in for the end of 2020 as a result.”

These banks join the other two majors, Westpac and NAB, that were already predicting two interest rate cuts this year.”

The full article link is included :

https://www.abc.net.au/news/2019-04-25/australian-dollar-falls-anz-cba-rate-cut-rba/11045686?section=business

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