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Westpac changes its mind on the RBA rate cuts

James Mickleboro
Interest rates

According to the latest Westpac Banking Corp (ASX: WBC) Weekly economic report, the banking giant no longer expects the Reserve Bank of Australia to cut the cash rate at next week’s February meeting.

This follows the solid employment data that was released last week, which came in well ahead of expectations.

Westpac’s Chief Economist, Bill Evans, explained: “Prior to the release of the surprisingly strong December Employment Report we had expected the cuts to be timed for February and June.”

Will rates no longer go any lower?

Unfortunately, it is a little too soon for income investors to celebrate. Westpac still believes that the rate cuts are coming. It will just be a little later than it previously expected.

Mr Evans said: “We believe that the current positive signals around the labour market will prove to be unsustainable and we continue to expect that the unemployment rate will drift higher through 2020, reaching 5.5% by mid-year.”

“We also expect that the data associated with the core issues highlighted by the Board – wages growth; inflation; consumer spending – will signal that further monetary stimulus will eventually be required,” he added.

In light of this, Australia’s oldest bank now expects the Reserve Bank to delay its next cash rate cut to April. After which, it expects a final cut to 0.25% to occur at the August meeting.

“Given this strength and the significance of the labour market in the mind of the RBA, we have consequently decided to push out our forecast for two further cash rate cuts from February and June to April and August 2020,” Mr Evans explained.

He added: “The importance of the April date is that the Board will have seen another print of the national accounts for the December quarter which is likely to highlight the soft growth environment while we expect that the surprise improvement in the unemployment rate will be unravelling.”

The post Westpac changes its mind on the RBA rate cuts appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has recommended National Storage REIT. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020