At 2:30 PM Australia time, the Reserve Bank of Australia will announce its latest interest decision.
With China slowing down, and thus inflicting heavy blows on the Australian economy, the question seems to be: How much will they cut?
Estimates are all over the map, ranging from no cut, to 50 basis points.
Here’s the call from JPMorgan, which sees a 25 basis point cut at this meeting.
We are changing the RBA call to include a 25bp rate cut tomorrow and an additional 50bp of policy
easing before the end of this year. We now anticipate that theterminal cash rate in this cycle will be
3%, the same low reached during the depths of the global financial crisis three years ago. Previously,
we had expected just one more quarter point rate cut this year (in August). The deterioration in both
domestic and offshore conditions in recent weeks, however, has convinced us that the case for the
provision of earlier and bolder policy support has become irresistible.
The main reason for the forecast change is the deterioration in financial and economic conditions
offshore. In recent days, our colleagues have pushed through material growth downgrades for the
US, China, other economies in Emerging Asia, and key economies in Latin America, including Brazil.
These follow earlier downgrades for China and Europe. Weaker growth in our major trading partners
will affect Australia via the immediate and most obvious channel of compromised trade flows, but
also via softer bulk commodity prices (and, therefore, lower terms of trade). If key sponsors of major
projects in the resources sector share this caution, there could be even more slippage in the mining
investment pipeline, although it will remain impressive nonetheless.
Not surprisingly, the Aussie dollar (which is highly leveraged to the price of commodities and therefore the global economy) has been a total dog these last few months, as the economy has rolled over.
A 50 basis point cut, signaling a very aggressive RBA, could weaken the Aussie further.