Another rate cut from the Reserve Bank of Australia is now a near certainty given the outcome of the UK Brexit referendum, says Westpac.
Here’s a snippet from a report released by Justin Smirk and Elliot Clarke, senior economists at the bank, earlier today.
“Westpac’s previously anticipated a cut in August, following the Q2 CPI,” they wrote. “This now seems a near certainty if global developments play out as we expect.”
Alongside the expected cut in the official cash rate to 1.50%, Smirk and Clarke believe that the RBA will likely adopt an explicit easing bias, communicating to not only markets but households and businesses that the bank can and will cut rates should it be deemed necessary to buttress economic growth.
“Given the now much greater degree of global uncertainty, we would expect the RBA to provide a notional easing bias from that point on to assure markets, households and businesses that all is being done to help smooth troubled waters.”
While the RBA will hold its July monetary policy meeting next week, Smirk and Clarke believe the recent decline in the Australian dollar “should give the RBA time to assess the situation and prevent them from having to provide an ‘emergency’ rate cut in July”.
Even before the volatility and uncertainty generated by the UK referendum result, 22 of 23 economists were expecting the RBA to cut official interest rates to a record-low level of 1.5% by its August policy meeting.
Cash rate futures currently put the odds of 25 basis point cut in August at 81%.