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Cup Day rate cut almost certain

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
29 October 2020 1 minute readShare
Cup Day rate cut almost certain

All bets are on a Melbourne Cup rate cut, but while the rate is expected to inch close to zero, it is forecast to remain in positive territory.

According to CBA’s chief economist, Stephen Halmarick, a November rate cut by the Reserve Bank of Australia now looks all but certain, with the bank expected to push forward into “conventional unconventional monetary policy space” at its board meeting on Tuesday.

In a recent speech, the RBA governor, Philip Lowe, made it clear that while the economic recovery was now underway, further monetary policy easing is coming. And with the Australian Bureau of Statistics revealing a rise in CPI following its largest quarterly slump in 72 years, the RBA is likely to ride the rising consumer confidence wave by further encouraging spending, with the ultimate goal to target annual inflation of 2 to 3 per cent.

“This easing is expected to involve a cut in the three key interest rates: the cash rate target, the three-year bond yield target, and the Term Funding Facility target from 0.25 [of a percentage point] to 0.1 [of a percentage point],” Stephen Halmarick said.

“Critically, this easing of monetary policy is expected to be implemented at the same time as the RBA looks set to revise upwards their economic forecasts given the run of better economic data.”

The RBA is, however, remaining tight-lipped on Tuesday’s proceedings.

Speaking before a Senate estimates hearing earlier this week, RBA deputy governor Guy Debelle was asked about the possibility of a significant quantitative easing program. He, however, refused to reveal too much so close to rate day. 

“We have a policy decision next Tuesday which is pretty market sensitive, so I don’t want to provide too much commentary around whether or not that will go ahead,” Mr Debelle said.

The cash rate is currently at a record-low of 0.25 of a percentage point, but while economists are unanimous on a Melbourne Cup cut, most expect it to stay above zero.

In a separate speech on Tuesday, RBA assistant governor Michele Bullock said that the expected increase in business failures will put banks’ profits under significant pressure.

“While not all business failures will result in losses for the banks, it will have an impact on banks’ balance sheets,” Ms Bullock said.

“Business failures will increase even as the economy starts to recover. Business failures are currently much lower than usual because of income support, loan repayment deferrals and temporary insolvency relief. But this can’t last and we expect to see failures rise.”

Cup Day rate cut almost certain
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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