Yes, the RBA will cut interest rates again – but when?
Does anyone remember the last time Australia’s interest rate was 1.5 per cent?
We all do – it was barely three months ago.
But that all changed after the Reserve Bank of Australia slashed interest rates by 25 basis points in June – and then again in July, bringing Australia’s national interest rate to historic new lows of 1 per cent.
Did they pass it on? Has your bank passed on the RBA’s back-to-back interest rate cut?
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But it doesn’t look like the Reserve Bank is done yet.
In fact, economists are tipping the central bank to slash rates one or two more times before the year’s up.
And if they cut by 25 basis points each time, this could put the nation’s interest rate as low as 0.5 per cent for the first time in history.
This isn’t far from a vision of a 0 per cent interest rate Australia.
When will the RBA cut rates?
Bets are on for two rate cuts by the end of 2019 – in September and November.
According to independent economist Stephen Koukoulas and AMP Capital chief economist Shane Oliver, we should expect some changes in spring.
Both are predicting a rate cut for September and November, and if the RBA cuts by 25 basis points each time, that will bring our interest rate to 0.5 per cent.
November seemed to be the most favoured month among several economic experts, with this month also hand-picked by CommSec chief economist Craig James as well as 35 per cent of experts who told Finder they expected another cut in the eleventh month of the year.
October was tipped to be the second-most favourite month for the next cut by 23 per cent of experts, according to Finder.
Meanwhile, AMP Capital had initially forecast for cuts to be in November and February, but rising global threats have pulled these forecasts forward to September and November.
Yahoo Finance has contacted NAB, Westpac, and ANZ for comment.
From the horse’s mouth: What the experts say
Shane Oliver, AMP Capital chief economist
“RBA Governor Lowe retained an easing bias and the RBA’s own forecasts leave it on track to ease again. We had pencilled in two 0.25 per cent cuts around November and February but given the increasing threat to the global outlook we have moved them forward to September and November.”
“While it’s possible that the RBA will go below 0.5 per cent for the cash rate it’s unlikely as there will be little point as the banks will struggle to pass it on to borrowers as they won’t cut their deposit rates into negative territory. It’s also unlikely that the RBA will move to pay negative rates on bank reserves with it as there is little evidence from Japan and Europe where that has been deployed that it actually works.
“In fact, negative rates risk damaging the banks and their ability to lend. If the RBA wants to encourage banks to lend more it could always work with APRA to ease up on lending standards again!”
Stephen ‘the Kouk’ Koukoulas, independent economist
“I think the RBA has effectively told us all there are more rate cuts coming.”
“My guess is they go in September (after this week's wages and labour force data) and then again in November. Cash rate to 0.5 per cent by year end.
“That might be enough to see the economy pick up steam into 2020. We already have housing at a turn and exports, business investment and infrastructure are already strong.
“The missing link is consumer spending but that is likely to get a boost from lower rates ands the housing upturn, and I note that retailers, according to the illion business survey, are all of a sudden upbeat.”
Craig James, CBA CommSec chief economist
“The Commonwealth Bank Group (includes CommSec) expects a 25 basis point cut in November.”
“Given the latest economic assumptions from the Reserve Bank, clearly another 25 basis point cut is possible in 2020.
“Much will depend on how inflation, economic growth and unemployment perform against RBA forecasts. And the US-China trade war is the other event to watch.”
Graham Cooke, Finder insights expert
“It's still looking likely that we'll see another cut before the year is out. Most economists are pointing to November as the potential month, but it very much depends on what happens between then and now.”
“Mortgage holders shouldn't wait till there's another cut to make sure they are on a good deal. Find out whether your lender has passed on the last two, and by how much. If they haven't see what other rates are available, then call them and see what they can do. If they don't match the rate, then it's time to refinance."
Steve Mickenbecker, Canstar group executive, financial services
“The Reserve Bank will likely hold for a couple of months, with an eagle eye for inflation and unemployment data releases. A false step on either could bring on another cut, but the central bank will be hoping that all of the stimulus will start to show in lower unemployment and higher inflation.”
“With only limited capacity for cuts from 1.00 per cent, the Reserve Bank wants to keep its diminished store of powder dry. The last two Reserve Bank cuts have worked their way through the market, with lenders passing on an average variable rate reduction of 0.22 per cent in June and 0.20 per cent in July.
“We are currently at a peak of interest rate activity, following successive cuts to the cash rate. Interest rate activity will settle in coming months, until there is another Reserve Bank move. This is unlikely to come before October.”
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