'Lock it in': Westpac expects RBA to cut cash rate by 25bps in May
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The news: Westpac expects the Reserve Bank will cut the cash rate at its 20 May meeting, regardless of upcoming first-quarter inflation data.
The numbers: The bank predicts the RBA will cut interest rates by 25 basis points to 3.85% next month, followed by two further cuts in August and November. It also said there is a "very outside chance" that the central bank's board will cut by 35 basis points.
The context: Westpac's chief economist Luci Ellis said that while the near-term outlook for RBA policy has been data-driven in previous quarters, the "turmoil abroad" has "changed the game and flipped the risks".
What they said: "Given the RBA’s analysis of the economy, it was more likely that they would cut less or more slowly than our base case, than that they would go faster," said Ellis.
"Now, however, uncertainty has escalated to a whole new level and the risks have completely flipped.
"You can lock in a 25bp cut in May, even if the Q1 inflation data are a shade disappointing.
"Even though we do not expect the US administration to implement tariffs at the rates originally announced, some damage has already been done.
"Global growth – and especially US growth – will be slower; the response of China will be disinflationary for the world outside the US; and uncertainty is likely to delay decisions on some investment projects."
The source: Westpac research
