Westpac's adds third RBA rate cut to forecast

Down down cash rates, are things really that bad?!!

Westpac's Bill Evans adds third RBA rate cut to forecast

"May 24, 2019 — 11.42am

Westpac chief economist Bill Evans has added a third interest rate cut to his forecasts on top of the two he is already calling for, meaning the cash rate will be at a record low 0.75 per cent in November if he is right.

Mr Evans is the only big four economist to call for three interest rate cuts from the Reserve Bank in this easing cycle, and the first to introduce cuts to his forecasts back in February.

On Friday, Westpac revised its forecasts for cuts in August and November, to cuts in June, August and November.

The futures market is pricing in a 96 per cent chance of an interest rate cut in June.

Reserve Bank governor Philip Lowe said on Tuesday that the board would contemplate cutting interest rates at the June meeting."

 

well, if 50 or 60 of that gets passed through, you may see some sizzle in servicing calcs for people not already carrying debt. They could be looking at assessment rates of between 5.75% - 6% P&I

I suspect INV borrowers would probably be looking at assessment rates in the low - mid 6ish range, P&I

That's great for a sugar ht to house prices potentially, but am I the only one who find it really concerning that we are potentially headed to a cash rate of 0.75%.

Now, I know there are plenty of LNP rusted on's here who are celebrating the coaltions return, but now the cold light of day is upon us again, we are left with the same stalling economy they've been presiding over for 6 years, and wage growth has disappeared . At some point , even the Shorten haters have to concede that 6 years in, this sits fairly and squarely on the coalitions shoulders. They cant pretend this is happening on anyone's watch but the coalitions. They've been in for 6 years, not 6 months. The RBA has been imploring them to spend big on fiscal stimulus for several years now, and its been falling on deaf ears. Their famed $100bn is pipedream stuff and years away from hitting the ground running . Their tax cuts aren't going to do it. The RBA wouldnt be calling over and over and over for big Govt infrastructure spending if they believed modest tax cuts were going to solve things ...

I dont know about other readers, but I dont see the prospect of a cash rate at or well below 1%. as something to celebrate. Great for my cash flow, yes...but its a sign things arent very healthy ... and it leaves nothing in the tank for external related disasters.

I want to see the newly elected Govt get energy sorted so companies start investing again, and get some new nationbuilding stuff going.... and fast

 

I'm not worried (as long as I can keep my job).

 

The US were at 0% rate for most of the last decade plus plus QE and still only now managed to get some wage growth and inflation going and suddenly they couldn't raise rates to their target and had to put on the breaks.

UK and rest of Europe pretty much in same boat. New Zealand has unemployment rate with 4 in front and still cut rates to 1.5% recently.

If all these countries are struggling to create some much needed inflation and wage growth and have similarly low rates you cannot blame LNP. I bet even if ALP was in power the situation would be fairly similar.

Secondly, LNP had a budget deficit problem (mostly inherited) which if not addressed could put Australia's AAA credit rating at risk and if we lose that it would result in higher borrowing costs for all. Going out there and spending money like there is no tomorrow just wasn't an option and would have been fiscally irresponsible.

I am surprised you think wage and inflation problem is simplistic one where you flick on switch and bang you can have inflation and wage growth.

Trust me the world's most respected academics have been scratching their heads on lack of inflation and wage growth inspite of doing everything that is theoretically supposed to work. Japanese are still scratching their head after 30 years of near 0% interest rates and still can't get inflation going. Is the developed world entering similar period to what Japan entered in the late 1980s? Who knows. Only time will tell.

Cheers,
Oracle.

 

I agree. It's very easy to see the seeds of a very big debt problem being created if assessment rates drop to high 5's and rates begin with a 2.

I don't see how prices of assets wouldn't rise significantly as a result, but that really isn't a reason to cheer in broad economic terms (higher house prices aren't a goal). Its also volatile and can come back down later in the cycle, which again creates more problems. If that were the environment, it would only take a bit of inflation (which could come externally) & time to have thousands of loans written that are unaffordable & potentially with little equity. I.e. you'd have a much bigger debt problem than before created.

 

Hold on. They have doubled the "debt and defiicit disaster" and spend a higher % of GDP than any previous Govt of any pursuasion. Respectfully, 6 years on - hanging it on the previous Govt doesnt wash anymore. They could have borrowed at 2% a couple of years back... almost free money.
Everyone on this forum borrows money to build wealth...why do Australians have such a hypocritical view of Govts doing the same?

 

What about the rest of the western world.

Looks like they are all dumb and you are the smartest kid in town.

Cheers,
Oracle.

 

For arguments sake, if there was a 0.75% - 1.00% rate cut (official cash rate at 0.50% to 0.75%).

What does that look like for property prices everyone? still below 2018 levels, back up to 2018 levels or beyond?

 

Are you suggesting we shouldnt have issued 20 year bonds at less than 2% when we were able to a few years back, and used the funds to build infrastructure?

 

Pretty sure we're going through the biggest public sector investment boom in this country for a long long long time.

Federal and State balance sheets are being used to fund this (assume it's both a debt and equity mix). I.e. its balance sheet funded via selling assets and using balance sheet funding.

It's hard to go anywhere in Sydney or Melbourne without seeing a building/public infrastructure boom. Kudos to governments of all persuasions for getting on with it and getting it done.

I don't think you can blame this government for 'doubling' a deficit, it works on trend paths over time and longer term decisions. I.e. the government can make decisions to alter the path of something thats largely already set. From a finance/budgetary perspective, it was a political masterstroke by Gillard to bake in massive social spending programs just before being put into opposition. You can't just expect a new government to rip up the NDIS and Gonski funding that was committed into spending figures by the previous government. The country wants these social programs (and rightly so, certainly with a well functioning NDIS program).

Nonetheless, these were legislated late into Gillards term (just before Rudd), and increased the structural level of spending in Australia year on year. To be fair to both sides of government, this works both ways too (Howards permanent tax cuts created a structural deficit that came to light once the mining boom slowed down post GFC).

They also tried the extreme approach initially to cutting spending in the 2014 budget...safe to say Australian's didn't like it and then chose a more measured approach of simply restraining any further growth in spending to ~50 year lows.

Doing very little with spending is how they've got themselves back into surplus. Combine this with rampant nominal growth figures (on the back of a mining export boom and crazy high prices) and the surplus has come a couple years earlier than they forecasted a few years ago. Spending growth at below 2% is very difficult for a government to do (and remain in power!).

Nonetheless, completely agree with you on how fiscal policy should be working. I don't think a country should measure its spending growth as a benchmark for success on its own. Perhaps we've convinced ourselves that this is the right thing to do, but it has consequences. E.g. right now I'm pretty confident using a better mix of fiscal policy vs monetary policy can be used to stimulate rather than 2-3 rate cuts/assessment rate cuts...especially considering the big sugar hit the federal coffers are going to see with Iron Ore prices at $US100tn (vs ~$60 forecasted in the budget).

 

Its almost all state stuff... almost all funded by selling A grade assets . Then it will be privatised and you and I will pay $$$$$ each way to use it each day.... its why I hold shares in Transurban just quietly The Feds have $100Bn slated over the next 10 years., but that's not enough and it's not now. Even the RBA Guv is saying its not anywhere near enough. Its been a regular theme for this and the last Governor for some time now, imploring way more spending from the Feds. They have said it more than once...

And they are well underspent on NDIS...so thats not the reason their budget isnt running as well as they claim.

I think they should be investing BIG. BIG water ( Even Pauline Hanson is all for it ) . BIG rail. BIG solar. BIG wind. It would allow for BIGGER inland cities to support BIGGER populations.. and we could become a food bowl to Asia or the world. But that's just me .... I believe this country could be an energy and food superpower within 20-30 years if it set about it.

Is drought proofing Australia the possible dream? - Pump Industry Magazine

Water Harvesting and Drought-Proofing Australia - Australians for Constitutional Monarchy

Bradfield Scheme - Wikipedia

 

Three rate cuts would be a terrible sign for the economy.

 

Way beyond....and that's not a good thing. We need a breather.

 

Thats without any really bad economic news.
In years gone bye when there was severe problems with the economy or stock markets crashes, rates would typically drop by 200-400 pts to protect the economy.
We have neither the moment and there is lots of talk of RBA rates going down to 1%.
Our problem is being really caused by low consumer spending which forces companies to be a lot more competitive , whick can slow down wage growth.
Encouraging people to take on more debt , doesn't solve the problem it just creates a bigger problem.