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Westpac tips rate cuts, QE, and house price increases in 2020

James Mickleboro
ASX Shares

According to the most recent Westpac Banking Corp (ASX: WBC) Weekly economic report, things could get tougher for savers and income investors in 2020.

This is because Australia’s oldest bank is tipping two cash rate cuts and quantitative easing next year.

Why is Westpac dovish?

The bank’s chief economist, Bill Evans, feels that Australia’s growth prospects are likely to be impacted by a difficult global environment.

In addition to this, Mr Evans notes that business investment growth is likely to remain subdued next year as businesses respond to a challenging global outlook and weak domestic demand.

As a result, the economist expects the Reserve Bank to take monetary policy to new levels over the next 12 months.

He explained: “Monetary policy will be stretched to its maximum – two more cash rate cuts from the RBA, to reach the effective lower bound for the overnight cash rate of 0.25%, to be followed by open ended Quantitative Easing.”

“This policy is likely to be restricted to purchases of Commonwealth government securities and semi government paper. With limited supply of ‘free’ CGS the RBA will have to be strategic rather than using the heavy handed approaches we have seen in other markets,” he added.

What about the United States?

The economist also expects the U.S. Federal Reserve to turn particularly dovish in 2020.

Mr Evan said: “With the ‘symmetrical’ inflation target of 2% proving elusive and the Federal Reserve adjusting its forecasts to a below– trend outlook, the need for further monetary policy stimulus will become clear.”

“We are expecting three cuts from the Federal Reserve in 2020 Federal Reserve policy will ensure lower bond rates over the course of 2020.”

This compares to current market expectations for a single cut by the Federal Reserve next year.

What about house prices?

The good news for homeowners and REA Group Limited (ASX: REA) is that Westpac is positive on house prices next year.

The bank expects a continued resurgence in house prices in 2020. And while this is expected to be at a slower pace than during the second half of 2019, Mr Evans believes it “will provide some ‘wealth associated boost’ through the second half of 2020, given a likely one year gap from the timing of the recovery in house prices.”

The knock-on effect of this will be a lift in consumer spending. The economist is forecasting consumer spending growth lifting from a 1.5% annualised pace in the first half of 2020 to a 2% pace in the second half.

This will be welcome news for retailers such as JB Hi-Fi Limited (ASX: JBH) and Myer Holdings Ltd (ASX: MYR).

The post Westpac tips rate cuts, QE, and house price increases in 2020 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 REA Group Limited. 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. 2019