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Can we expect a Budget Day rate cut?

Samantha Menzies
·Contributing editor
·3-min read
Can we expect a budget day rate cut? Source: Getty
Can we expect a budget day rate cut? Source: Getty

Major banks have tipped a 2020 budget day cash rate cut to 0.1 per cent as the Australian economy begins a bumpy road to recovery. But not everyone is convinced.

Australia’s official cash rate fell to its historic low of 0.25 per cent in March, with the RBA having previously been reluctant to voice any sort of consideration for taking interest rates even lower.

But RBA Deputy Governor Guy Debelle has now said the bank is ready to do more to help the nation recover from the worst downturn in nearly a century.

Debelle outlined the possibility for further monetary policy action in a virtual speech last week and concluded that “as the outlook for the Australian economy unfolds, the [RBA] Board will continue to assess the merits of the range of monetary options to best support the economic recovery”.

Major banks and home loan lenders took this as a signal that further monetary easing is not only likely, but likely in the near-term.

NAB now sees significant risk of the RBA easing policy further by cutting the cash rate,” the major bank said.

“NAB expects these further easing measures to be announced at either the October or November Board meetings, noting that the October Board meeting is the same day as the Budget, while the November SMP after the November Board could be an avenue to communicate its messaging to a wider audience.”

AMP Capital chief economist Shane Oliver also thinks the RBA is likely to cut the cash rate on Budget Day.

“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, as it’s the same day as the budget,” he said.

But while Westpac had originally tipped the RBA would cut the cash rate by 15 basis points to 0.1 per cent alongside its other policy measures on budget day, the major bank has since retracted the prediction.

Westpac chief economist Bill Evans now says that an interest rate cut is more probable in early November as the central bank will want to scope out the Government’s full response to the coronavirus pandemic.

“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,” Evans said.

Lenders begin to slash rates ahead of a predicted 2020 budget day cut

Eleven lenders, including Commonwealth Bank and ING, have axed their owner-occupier and investor home loan rates in response to Debelle’s speech last week.

Commonwealth Bank reduced its lowest variable rate by 10 basis points to 2.69 per cent last week, while Australia’s fifth biggest lender, ING, also lowered its variable rates for new customers who live in their own home by 10 basis points, with its lowest variable rate at 2.49 per cent, Ratecity reported.

Online lender Pacific Mortgage Group has dropped its one-year fixed rate by 20 basis points to 1.99 per cent for owner-occupiers and Illawarra Credit Union cut its variable owner-occupier rate by 1.65 percentage points, bringing it down to 2.59 per cent.

Australian Unity, Firstmac, People’s Choice Credit Union, Yard, Virgin Money and Homestar Finance also dropped rates in anticipation of a budget day cut.

The RBA will announce its next monetary policy decision after its October board meeting at 2.30pm, Tuesday 6 October.

For more Yahoo Finance stories on the 2020 Federal Budget, visit here.

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