Yesterday’s big 37,700 has the market rethinking the chances of another cut to the official cash rate from the RBA in May.
But not Westpac’s chief economist Bill Evans. Evans was among the first to call a rate cut from the RBA in February as far back as December last year. But he thought the economy was in such a state that the RBA would follow February’s move with another cut in March.
Having waited two more months for what he sees as necessary monetary accommodation, Evans today said that a May 5 rate cut is almost certain.
Evans said that with consumer sentiment below the 100 level and “again looking vulnerable heading into the Budget announcement next month” and with “an almost complete retracement of the sharp fall in petrol prices seen earlier this year,” together with blanket coverage of the crash in iron ore, consumers are worried about jobs and the economy.
This, he says, threatens the much-needed requirement for economic transition — consumers spending at a pace faster than income growth.
Markets have sharply lowered the probability of a move in May. We doubt such a response given the complication of a revised seasonal treatment and the well established observation that the RBA has rarely changed policy on the basis of a single Employment Report.
We’ll know on May 5 at 2.30pm.