The RBA could try to sneak another interest rate in before the federal budget, some economists say

The RBA may be sharpening its blade in preparation for another interest rate cut. (Photo by Ahmed Al Sayed, Anadolu Agency, Getty Images)
  • Four in ten economists expect interest rates to fall to 0.10% in the next two months, a Finder survey has found.
  • The majority of those expect the Reserve Bank of Australia (RBA) will wait until November to see what the Australian government has in its federal budget due to be handed down on Tuesday.
  • However, even those who believe the RBA will cut say the impact of doing so will be minimal.
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Interest rates may not have hit 0% per se, but they look like they could come damn close.

Sitting at 0.25% since March, when the Reserve Bank (RBA) slashed twice in a single month, the central bank is again looking to cut, economists say.

A Finder survey of 40 eggheads found 40% expect the RBA will cut the cash rate to 0.10% in the next two months. Of those, one-third say the cut will be on Tuesday when the central bank convenes next, while the rest say they’ll do it a few weeks later at their November meeting.

Having not made a move since March, the timing would be no coincidence. A Tuesday cut would come just hours before the Morrison government hands down its belated federal budget. A November one meanwhile would be the first opportunity for the central bank to act having assessed the government’s fiscal stimulus plan.

“The RBA has signalled that it is considering easing policy further in the near term. On balance it will likely wait until after the budget to do this as it will be hoping that fiscal largess that is expected will be enough to prevent it from having to do anything,” IFM Investors chief economist Alex Joiner said.

If it does feel inclined to act, however, and with the cash rate already at its “effective lower bound”, the impact of a move lower would be muted.

“Whilst it might be tempting to reduce the cash rate, any reduction now would have little economic benefit and there would be no room to move if rates needed to be reduced during the next six months,” Peter Boehm, the chair of forex trader CLSA Premium, said.

Instead, there’s an argument that the central bank should save what little ammunition for the economic crunch expected in the coming months.

“While there is a lot of talk about the RBA easing this month or next I believe they need to keep some powder in the keg,” Cameron Kusher, economic research executive manager at REA Group, said.

“I would argue that further monetary policy easing will potentially be needed when a lot of the economic support measures such as JobKeeper, JobSeeker and mortgage holidays are ended in early 2021.”

In the meantime, future stimulus, COVID-19 transmissions, and the reopening of borders will be of greater significance to the economy.

On that front, nearly 90% of economists surveyed expected domestic borders to be opened by Christmas.

Now there’s some good news at least.

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