November 1, 2019 / 4:53 AM / a month ago

POLL-Australia to stay put in Nov, likely cut rates next year

* euters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?s=GCR01+2H+7&st=Menu+G+C poll data

By Swati Pandey

SYDNEY, Nov 1 (Reuters) - Australia’s central bank will likely hold its cash rate at a record low of 0.75% next week but cut at least once more early next year to help revive inflation and a slowing economy, a Reuters poll showed.

A majority of the 36 economists surveyed expect the Reserve Bank of Australia (RBA) to keep its benchmark rate at 0.75% at its Nov. 5 policy review.

As many as 25 of 36, or nearly 70%, forecast rates at 0.5% by early 2020 with four predicting deeper cuts to 0.25%.

A median of 24 respondents expects the cash rate will remain at 0.5% through end-2021.

Economists’ predictions align with market pricing which shows little chance of a move in November. Futures are predicting a 60% chance of a cut to 0.50% in March.

Australia’s A$1.95 trillion ($1.4 trillion) economy is in its 29th year of recession-free expansion, the longest boom among developed countries. But economic risks have intensified over the past year, with growth slowing, inflation lukewarm and unemployment ticking higher.

The RBA expects the economy to start generating wage pressures only when unemployment falls to 4.5% or below. That could prove challenging given the jobless rate has now risen to 5.2% from as low as 4.9% in February.

To achieve that goal, the RBA chopped rates in June and July to 1% and then followed up with a third easing last month. The cuts have prompted banks to lower mortgage rates, which helped fuel a revival in the housing market where prices had been in a downtrend since 2017.

Outside the property sector, indicators are weak with consumer and business sentiment surveys remaining gloomy.

Ahead of the RBA’s decision, retail sales on Monday is likely to show a decent monthly rise of 0.5% following a below-forecast 0.4% gain the previous month. The RBA will also provide its updated quarterly forecasts for the economy and inflation next week and analysts expect small downgrades for near-term growth.

“On that score, the retail sales data due on Monday will be of considerable interest,” ANZ economists wrote in a note.

ANZ, which is predicting the cash rate at 0.25% by mid-2020, expects a “positive impact” on retail sales from lower lending rates and recent tax rebates offered by the country’s conservative government to millions of Australian households.

That together with a pick-up in approvals to build new homes as well as higher housing finance figures might be an indication of a “gentle turning point for the economy” that RBA Governor Philip Lowe has been hoping for.

“While at the margin this (turning point) weakens the case for further rate cuts, we struggle to see how unemployment can fall as far as the RBA wants without further easing,” ANZ said.

“Not least because inaction would likely see the AUD push higher.”

$1 = 1.4476 Australian dollars Editing by Jacqueline Wong

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