Morgan Stanley on Tuesday forecast the Reserve Bank would ease in February, cutting target rates from 0.25 per cent to 0.1 per cent, and add a “modest quantitative target” for bond purchases.
Last week, Westpac chief economist Bill Evans said the Reserve Bank would deliver a rate cut at its next meeting on October 6, coinciding with the most important federal budget in years, in what he called a Team Australia moment.
Westpac chief economist Bill Evans walked back his forecast that rates would be cut in October. James Brickwood
The call sparked a sharp reaction in the market as the three-year rate fell to 0.19 per cent, while the bank bill swap rate set at a record low of 0.08 per cent.
Less than a week later, Mr Evans walked back that forecast, saying he now expected the central bank would wait until November to cut in order to avoid detracting from the historic federal budget.
“A central bank moving on budget day could be interpreted by the government and the bank itself as diverting attention away from the budget and complicating the governments task in selling the budget,” he said.
“The governor himself, who has been such a strong proponent of fiscal policy, may also see the advantages of allowing space for the government to promote its budget.”
On Tuesday, Capital Economics stuck to its call for an October rate cut, adding it disagreed with the suggestion from commentators the RBA wouldn’t want to distract from the federal budget.
“By contrast, we think that announcing more support alongside the budget would send a strong Team Australia message and have pencilled in a cut in the cash rate target, the three-year yield target and the term funding facility interest rate to 0.1 per cent at the banks October meeting,” said Capital Economics senior economist Marcel Thieliant.
“We also expect the bank to announce more bond purchases next week.”
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