RBA Rate Forecasters Race to Bottom Intensifies With 0.5% Seen

(Bloomberg) -- The Reserve Bank of Australia’s signal it expects to lower interest rates this year is setting off a fresh round of forecasts for deeper policy cuts as economists ponder where the lower bound is Down Under.

JPMorgan Chase & Co. on Wednesday said it expects the central bank will have to cut its 1.5% benchmark 1 percentage point by the middle of 2020 in an attempt to achieve the RBA’s inflation and employment goals. That forecast follows projections of a 0.75% rate over the same time frame from Westpac Banking Corp. and Capital Economics.

After holding rates steady since taking over in late 2016, RBA Governor Philip Lowe this month acknowledged an easing bias as he struggles to revive sagging inflation and growth. That came after weaker-than-expected first-quarter inflation undermined the central bank’s hopes for a turnaround from an economic slowdown at the end of 2018.

“A number of developments in recent months suggest the RBA is unlikely to achieve desired macro-economic outcomes with only 50bp of easing,” economists including Sally Auld wrote in a JPM report emailed Wednesday. “Our sense is that the combination of global headwinds, and the RBA having slipped behind the curve, could therefore be decisive in bringing 4 cuts, rather than 3.”

JPM is outpacing rates traders, with swaps forwards seeing the RBA rate at 0.79% a year from now. The Australian dollar was little changed at 69.21 U.S. cents as of 9:17 a.m. in Sydney, down 1.9% over the past month, while three-year yields slid 1 basis point to 1.11%, just above the record low touched last Friday.

Governor Lowe opened the door wide to rate cuts in a May 21 speech in Brisbane.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” he said. “Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

--With assistance from Victoria Batchelor.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net

To contact the editors responsible for this story: Mark Cudmore at mcudmore8@bloomberg.net, Malcolm Scott, Michael Heath

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