Westpac Is Still Expecting An RBA Rate Cut In August

Westpac economists are still expecting the Reserve Bank to cut interest rates to 2.5% next month, despite the market’s reaction to RBA meeting notes today.

The AUD/USD spiked shortly after the RBA published the minutes of its July meeting this morning, with some traders speculating that the RBA’s statement that its policy was “appropriate for the time being” meant that it was less likely to cut rates next month.

Westpac said this afternoon that the minutes were downbeat about domestic economic conditions, pointing to weak Q1 consumer spending, flat April retail sales, and high job loss fears.

“Weak data releases since the meeting suggest the case for further easing to support demand has been strengthened,” Westpac economists added.

Here’s what Westpac said:

Despite some revision to market pricing, Westpac believes that the case for an August rate cut is intact with the minutes highlighting further deterioration in the domestic economy; a concern that the AUD remains high; ongoing confidence in achieving the inflation target and reiteration that the bank retains its clear easing bias.

We do not see this or the Q2 CPI numbers due out next week as precluding a 25bp rate cut at the RBA’s August 6 meeting. Beyond that we continue to see two more 25bp rate reductions coming in the December and March quarters taking the cash rate to an eventual low of 2%.

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