Banks bet on cash rate reduction
(4 June 2012 – Australia) Economists are speculating over the Reserve Bank of Australia (RBA)’s next interest rate move, with many pointing to an even-money bet that May’s cut will be matched and the cash rate will drop to 3.25 percent.
The speculation follows Europe's deepening debt woes and signs that China's juggernaut is slowing.
For now, about half of economists polled by Bloomberg expect the central bank to cut the cash rate by 25 basis points to 3.5 percent.
Commonwealth Bank of Australia (CBA) also foresees a 25 basis point rate cut next week, based on the deteriorating economic outlook.
"In normal times the RBA would sit on the sidelines next week," said CBA chief economist Michael Blythe. "But offshore metrics mean a rate cut is now likely."
National Australia Bank (NAB) has brought forward its forecast for RBA rate cuts, and also tips the cash rate will be 3.5 percent when the central bank reveals its decision at 2.30pm, AEST.
The ANZ is also predicting the RBA will lower its cash rate to 3.5 percent on Tuesday, according to Bloomberg.
The RBA may have been late in reducing its cash rate last month, waiting for its fourth meeting of 2012 to add to the back-to-back monthly rate cuts at the end of 2011.
In recent weeks, gloom from Europe over whether Greece or other nations may exit the euro zone - triggering financial turmoil in the process - has sapped investor confidence.
Australia, which was virtually alone among rich nations to dodge a recession during the GFC, has seen its growth prospects dim in recent months as commodity prices have come off the boil.
China, Australia's biggest export market, today added to those concerns, reporting that its manufacturing grew at a weaker-than-expected pace in May. The government there has also sent mixed signals this week that it is planning a major stimulus effort to help rekindle growth in the world's second-biggest economy.
For now, about half of economists polled by Bloomberg expect the central bank to cut the cash rate by 25 basis points to 3.5 percent.
Commonwealth Bank of Australia (CBA) also foresees a 25 basis point rate cut next week, based on the deteriorating economic outlook.
"In normal times the RBA would sit on the sidelines next week," said CBA chief economist Michael Blythe. "But offshore metrics mean a rate cut is now likely."
National Australia Bank (NAB) has brought forward its forecast for RBA rate cuts, and also tips the cash rate will be 3.5 percent when the central bank reveals its decision at 2.30pm, AEST.
The ANZ is also predicting the RBA will lower its cash rate to 3.5 percent on Tuesday, according to Bloomberg.
The RBA may have been late in reducing its cash rate last month, waiting for its fourth meeting of 2012 to add to the back-to-back monthly rate cuts at the end of 2011.
In recent weeks, gloom from Europe over whether Greece or other nations may exit the euro zone - triggering financial turmoil in the process - has sapped investor confidence.
Australia, which was virtually alone among rich nations to dodge a recession during the GFC, has seen its growth prospects dim in recent months as commodity prices have come off the boil.
China, Australia's biggest export market, today added to those concerns, reporting that its manufacturing grew at a weaker-than-expected pace in May. The government there has also sent mixed signals this week that it is planning a major stimulus effort to help rekindle growth in the world's second-biggest economy.
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