September 26, 2019 / 4:50 AM / 21 days ago

Australia central bank seen easing policy in October, rates seen at 0.5% by early 2020: Reuters poll

SYDNEY (Reuters) - Australia’s central bank is all but certain to cut its cash rate to a record low of 0.75% next week and it will likely ease again in early 2020 to boost inflation and support a stuttering economy, a Reuters poll showed.

FILE PHOTO: Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz/File Photo

As many as 25 of 35 economists, or 71% of those surveyed, expect the Reserve Bank of Australia (RBA) to ease its benchmark rate at its Oct. 1 meeting.

A median of 37 respondents shows interest rates are seen at 0.5% by early 2020 - considered to be the floor for policy in Australia. In the July survey, Standard Chartered and Goldman Sachs were the only two banks to predict rates that low.

Economists’ predictions align with market pricing with financial futures <0#YIB:> showing a 74% probability of an October cut. Interest rates are then seen at 0.5% by March 2020.

Expectations for an October easing were cemented after a speech by RBA Governor Philip Lowe this week, which indicated more cuts to interest rates may be needed and that the board would “again take stock of the evidence” on Oct. 1.

Those comments firmed October easing expectations for some economists and prompted others to bring forward their rate cut calls.

“In our view, Governor Lowe has all but ‘pre-committed’ to an October rate cut,” UBS economist George Tharenou said in a note.

“We still expect the RBA to cut 25 basis points in October, and again in Feb-2020 & May-2020 to 0.25% amid rising unemployment and further global central bank easing,” Tharenou added.

“In our view, Lowe’s speech reduced the risk of an ‘on-hold’ in October, but if the RBA does hold, a cut in November is clearly still very likely.”

Australia’s A$1.9 trillion economy completed its 28th year of recession-free expansion last quarter, the longest boom among developed countries. But economic risks have intensified over the past year, with growth slowing, inflation lukewarm, property market shaky 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 5.3% from as low as 4.9% in February.

To achieve that goal, the RBA chopped rates in June and July to 1%. The cuts have prompted banks to lower mortgage rates, helping fuel a revival of the subdued housing market.

Outside the property sector, indicators are weak with official retail figures showing Australians tightening their purse strings and consumers and business sentiment surveys remaining gloomy.

The country’s conservative government has also shown little inclination to increase spending as it focuses on delivering a promised budget surplus in the current financial year.

That explains why some economists, including those at Barclays, Goldman Sachs, Morgan Stanley and Standard Chartered, are predicting the cash rate at 0.5% by as soon as Christmas.

Reporting by Swati Pandey; Editing by Sam Holmes

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