5 days ago
Sign RBA could deliver three interest rate cuts this year: 'Sooner'
The Reserve Bank of Australia (RBA) may be pressured to cut interest rates again in July after economic growth was weaker than expected. The Australian economy grew just 0.2 per cent in the March quarter, down from 0.6 per cent in the December quarter.
The latest national accounts published by the Australian Bureau of Statistics (ABS) found economic activity increased by just 1.3 per cent over the year to March. The RBA had forecast annual GDP growth of 1.8 per cent by the end of the June quarter.
Per capita, GDP went backwards again and was down 0.2 per cent in the quarter and 0.4 per cent for the year.
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Some economists have pulled forward their rate cut predictions following the 'gloomy' growth outlook and think the RBA could deliver a back-to-back rate cut in July.
AMP deputy chief economist Diana Mousina had previously been expecting another 0.25 per cent cut in August, November and February, but has now added another 0.25 per cent cut in July.
'This means that the cash rate is likely to end up around 2.85 per cent at the end of the rate cutting cycle,' she said.
Commonwealth Bank senior economist Stephen Wu said the bank's base case remained for another 0.25 per cent cut in August, but an earlier July cut remained a possibility with labour market and inflation data likely to be in the RBA's sights.
'July very much remains a live meeting and today's data has further shifted the balance of probabilities towards a cut,' he said.
'Market pricing for July has lifted and the May Board Minutes did little to push back at this.'
Oxford Economics Australia lead economist Ben Udy said the RBA would be watching closely for further signs of the March quarter weakness extending to the June quarter.
"If that evidence continues to rack up, the RBA may opt to cut rates again in July, a little sooner than our current forecasts suggest,' he said.
IFM Economist Alex Joiner said the GDP data 'only added to the case that the Bank will ease in July rather than wait until August'.
Goldman Sachs Australia chief economist Andrew Boak said there could be three more interest rate cuts this year.
'We see a strong case for the RBA to cut again in July, particularly given inflation has returned to target and a 50 basis points reduction was considered in May," he said.
'Further ahead, our base case is for cuts in August-November to a terminal rate of 3.1 per cent, but we see the risks as skewed firmly to the downside.'
The RBA cut interest rates at its June meeting by 0.25 per cent, but governor Michele Bullock said the board did consider the possibility of a larger 0.50 per cent cut.
Economist and Yahoo Finance contributor Stephen Koukoulas said a supersized interest cut was justified at the upcoming July meeting, branding the 0.2 per cent growth as "pathetically weak".
'The bottom line is we need to see a 50 point rate cut from the RBA at the July meeting. The longer it takes to get the cash rate to a neutral, let alone accommodative level, the worse the economy will be.
'That neutral level is somewhere in the low 3 per cent, we are currently at 3.85 per cent, so we are 75 points away from the cash rate being neutral, that's not even accommodative.'
One additional 0.25 per cent interest cut would see the average borrower's repayments drop by $90, based on a $600,000 loan with 25 years remaining.
The RBA board will meet again on July 7 and 8.
