Finance Finance News Prepare for more rate cuts: ANZ

Prepare for more rate cuts: ANZ

Twitter Facebook Reddit Pinterest Email

ANZ’s economists say a stubbornly high unemployment rate will force the Reserve Bank to cut its benchmark interest rate by half a percentage point to a new low of 1.5 per cent.

“Pinpointing the timing of the cuts is tricky, but we are pencilling in 25 basis points cuts in February and May at this stage,” ANZ economists Warren Hogan and Justin Fabo said in a research note on Thursday.

They had previously been expecting rates to stay on hold, albeit with some downside risk, as economic growth gradually accelerates. But they now expect growth to be too slow to reduce spare capacity in the economy – including unemployment.

• Big banks abandon rural communities
• Home borrowing gets tougher

That’s partly because of a lowered forecast for global economic growth. And it’s partly because the boost to growth from housing construction and the lower Australian dollar will wane.

“With this backdrop, it is difficult to see how inroads can be made into an elevated unemployment rate,” they said.

Even if the unemployment rate is unchanged near its current level of 6.2 per cent for the coming two years that would be “very uncomfortable” for the central bank. But the jobless rate is more likely to worsen than improve, the ANZ economists said. “The economic backdrop we have outlined above points to greater risk that unemployment worsens rather than improves over the next 12-24 months.”

If the RBA’s governor Glenn Stevens goes down the “path of least regret”, he will need to cut rates again, they said.

View Comments