67% of experts predict a November interest rate cut

What’s going to happen to interest rates next Tuesday – on Cup Day?

Experts are predicting that the Reserve Bank of Australia (RBA) will announce a second rate cut for 2020 at the final meeting of the year.Reserve Bank Of Australia

In this month’s Finder RBA Cash Rate Survey™, 43 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy, with 67% (29/43) predicting a rate cut announcement next Tuesday 3 November.

Of those expecting a cut, the vast majority (22) say a reduction of 15 basis points (to 0.10%) is the most likely, while 5 experts predict a smaller drop of just 10 basis points (to 0.15%).

Graham Cooke, insights manager at Finder, said that this move would have been seen as unprecedented only a few months ago.

“The cash rate has already dropped 125 basis points in the last two years, so a further 10-15 point cut is unlikely to have much of an impact on the economy.

“However, our experts seem to think that the RBA is in ‘every little bit helps’ mode.

“The Reserve Bank said earlier in the year that it was considering 0.25% as an effective rock-bottom, so a cut of any sort is a reflection of the grim economic situation,” he said.

Cooke said recent comments by Deputy Governor Guy Debelle indicate that Australia may already be heading for economic growth after six months of recession.

“My hunch, despite economist’s predictions, is that the tone of the recent comments from the Deputy Governor indicate that a November cut is actually unlikely.

“Keep an eye on the ASX 200, however – any significant slide today or on Monday could spook the board into a Melbourne Cup day cut.”

According to Peter Boehm of CLSA Premium, the RBA will likely proceed with its decision to cut now that the Federal Budget announcement is out of the way.

“Interest rates were kept on hold last month largely due to the timing of the Federal Budget.

“Now that this has been announced, and states are showing reasonable signs of economic recovery (other than Victoria), further easing of monetary policy will likely be supported by the RBA,” Boehm said.

David Robertson of Bendigo and Adelaide Bank agrees, stating that the RBA has long hinted at additional monetary support, particularly in recent months.

“The RBA has been very clear in recent messaging that they wish to provide further monetary policy support to the economy. This will most likely be via an official cash rate reduction to 0.10%, along with further bond purchases and quantitative easing,” Robertson said.

Michael Yardney, founder of Metropole Property Strategists believes the RBA will cut rates saying:

“The RBA has signaled its intention to stimulate the economy and help business and job creation.”

But not all experts share this sentiment.

Angela Jackson of Equity Economics, one of 14 experts predicting a hold this month, believes that the RBA is taking a “wait and see” approach to the economy before intervening further, especially in light of Melbourne coming out of lockdown.

“The RBA will maintain current settings until the economy shows signs of a sustained recovery.

“While it may be concerned with lack of momentum in employment data, they will wait to see if Victoria reopening and state borders opening helps spur the recovery before moving rates down further,” Jackson said.

Rate cut could mean $15,000 in savings

Cooke said that if the rate is cut, it could mean big savings from lenders who pass on the reduction to customers.

“For mortgage holders, another rate reduction will be welcome news – even a cut of 15 basis points could save the average home loan customer around $500 a year in interest.

“Now is not the time for homeowners to be complacent. If the rate cut goes ahead and your lender doesn’t pass on the savings, it’s time to refinance to a more competitive deal,” Cooke said.

If a homeowner with the average mortgage of $479,801 were to drop from the current average variable rate of 3.99% to 3.84%, they would pocket an extra $495 per year.

Over the course of a 30-year loan, this would save them $14,857 in interest.

Potential rate cut savings if banks pass on a partial cut

Current
average
discounted
variable rate
(3.99%)**
15 basis point cut
3.84%
Loan
size
Annual
cost
Annual savings 30-year savings
$250,000 $14,304 $258 $7,741
$479,801* $27,455 $495 $14,857
$750,000 $42,916 $774 $23,224
$1,000,000 $57,221 $1,032 $30,966

Source: Finder, RBA                                                                 67% of experts predict a November interest rate cut
*Average owner occupier mortgage in Australia, (RBA)
**Average owner occupier variable discounted home loans rate, (RBA)

Here’s what the experts had to say:

Nicholas Frappell, ABC Bullion (Cut): “Weak payrolls and uncertainty over external demand and a clear message to maintain ‘highly accommodative policy settings’ in the October minutes.” Reserve Bank Of Australia

Shane Oliver, AMP Capital (Cut): “The RBA’s own forecasts show that it will not achieve its employment and inflation objectives over the next two years and so further easing is required to help address this. Recent RBA commentary has provided a strong signal that further easing is imminent. We expect this to take the form of a rate cut to 0.1% and broad-based quantitative easing.”

John Hewson, ANU (Hold): “The RBA are reluctant to move to negative rates. Could drop to 0.1 this month as this is already an effective market rate. No doubt political pressure to do so. Politics is all about “Announcement Value” but won’t make much real economic difference.”

Michael Yardney, Metropole Property Strategists (Cut): “The RBA has signaled its intention to stimulate the economy and help business and job creation.”

Rebecca Cassells, Bankwest Curtin Economics Centre (Cut): “There are strong signals by the RBA that they intend to cut rates further to support the economic recovery, making borrowing as attractive as possible and discouraging households from holding onto their dollars. Low inflation figures will tip the RBA’s decision to cut rates and we may also see additional quantitative easing over the coming months if progress towards the RBA’s 2-3 percent inflation target is viewed as too slow. Now that Victoria can add its strength, the pace of economic and job recovery should pick up substantially in the coming weeks and months. Whether this pace will deliver a full recovery of jobs lost plus additional employment and wage growth remains more possible than probable at this time.”

David Robertson, Bendigo and Adelaide Bank (Cut): “The RBA has been very clear in recent messaging that they wish to provide further monetary policy support to the economy, most likely to be via a reduction in the official cash rate to 0.10%, and further bond purchases/ QE.”

Sean Langcake, BIS Oxford Economics (Cut): “The RBA’s recent communications suggest they are prepared to lower the current rate structure but are still wary of taking rates negative. We expect they will lower the cash rate target by 10-15 basis points at the next meeting.” Interest Rate

Ben Udy, Capital Economics (Cut): “The RBA is coming around to our view that the Australian economy needs further stimulus. We expect the Bank to cut rates to 0.1% and launch further QE at their November meeting.”

Peter Boehm, CLSA Premium (Cut): “The head of the RBA has previously indicated a further rate reduction is likely this year. Interest rates were kept on hold last month largely due to the timing of the Federal Budget. Now that the Budget has been announced (and generally well-received), and other than Victoria, states and territories are showing reasonable signs of economic recovery, the justification for further easing of monetary policy to help further stimulate economic activity would likely be supported by the RBA Board at its November meeting. Whether this is a good idea or not only time will tell, but I am troubled by the drag Victoria has on overall economic recovery and the national impact of the reduction in JobKeeper. A further rate reduction may not have the desired impact, and leave nothing in the tank if the economy doesn’t show sustained signs of positive movement. And we don’t want a situation of negative interest rates.”

Saul Eslake, Corinna Economic Advisory Pty Ltd (Cut): “RBA has signaled pretty clearly that it thinks it can and should do more to support the economic recovery, speed the return to full employment and get inflation back into the target band.”

John Rolfe, Elders Home Loans (Hold): “I do not believe the RBA will wish to reduce rates further.”

Craig Emerson, Emerson Economics (Cut): “The RBA has signaled a cut in the cash rate from 0.25% to 0.10%.”

Angela Jackson, Equity Economics (Hold): “RBA will maintain current settings until the economy shows signs of a sustained recovery – while they may be concerned with lack of momentum in jobs data, they will wait to see if Victoria reopening and state borders opening helps spur the recovery before moving rates down further. ”

Scott Morgan, Greater Bank (Hold): “If [the cash rate] does move, it will only be a small increase in December.” Interest Only Lending Australia

Tim Nelson, Griffith University (Hold): “Fiscal policy is doing the heavy lifting during the pandemic (which may be for some time yet). When conditions improve and inflation picks up, the RBA will seek to increase rates to reflect this.”

Tony Makin, Griffith University (Hold): “In light of the recent worse than expected unemployment numbers and to prevent appreciation of the dollar – a major risk to economic recovery due to government foreign borrowing – the RBA is likely to reduce the cash rate, the term funding facility rate and the three-year bond yield target to 0.1 percent at its November meeting. A more significant move would be if it introduces quantitative easing via purchases of longer-dated (five to 10 year) government bonds.”

Stephen Miller, GSFM (Cut): “The RBA Governor has hinted that further easing measures are coming. I suspect this is mostly aimed at preventing the AUD from rising to uncompetitive levels.”

Tom Devitt, Housing Industry Association (Cut): “Australia is experiencing below-target inflation and elevated unemployment. The risks for the economy are highly asymmetric, with the costs of doing too little likely to be far greater than the costs of doing too much. The RBA’s balance sheet expansion is also significantly behind that of other central banks. This is putting upward pressure on the Australian dollar, weighing on exports and potentially turning consumers towards imports rather than domestic goods and services.”

Alex Joiner, IFM Investors (Cut): “The RBA has strongly signaled it thinks it needs to do more to support the economic recovery. Cutting the cash rate alone won’t be enough though as a 15bp reduction won’t do much, it will be part of another package from the RBA that will likely include a broader effort on quantitative easing as a minimum.”

Leanne Pilkington, Laing+Simmons (Cut): “The Reserve Bank previously signaled another drop was a possibility in November as more restrictions ease around the country, meaning a cut can potentially have a greater impact. Equally, we were assured that negative interest rates remain off the agenda, which will be an important measure of economic resilience as the recovery progresses.”

Nicholas Gruen, Lateral Economics (Hold): “They said they wouldn’t [cut the cash rate] but have more recently suggested they would.” low interest rates

Mathew Tiller, LJ Hooker (Cut): “The RBA needs to provide a suite of monetary policy measures to help support and encourage activity and growth, given the challenges facing the Australian economy.”

Geoffrey Harold Kingston, Macquarie University (Cut): “The RBA would like to cut the cash rate this November and has already been telegraphed by them. A couple of years down the track, however, will probably see inflation pressures build up.”

Jeffrey Sheen, Macquarie University (Cut): “Though it will make virtually no difference to cut the cash rate to 0%, I think the RBA may well do it to appear active and responsive.”

Stephen Koukoulas, Market Economics (Cut): “The recession rolls on and the RBA realizes it has made a mistake not to ease monetary policy earlier. It is playing catch up.”

Julia Newbould, Money Magazine (Hold): “I think the RBA might try and tweak the rate a final time before the end of the year.”

Susan Mitchell, Mortgage Choice (Cut): “I expect to see the first Melbourne Cup cash rate cut in nine years at the RBA’s next monetary policy meeting. The CPI for the September quarter is expected to show inflation below target yet again. Given the inflation and labor market will not meet the RBA’s targets for some time, it’s not surprising that Board members will decide to apply further monetary easing. It will be interesting to see what extent the rate cut is passed on to Australian borrowers.”

Dr. Andrew Wilson, My Housing Market (Cut): “Although last month’s speculation of a rate cut missed the mark, the RBA is now pointing clearly to a November cut and bringing back the traditional Melbourne Cup Day move.”

Jonathan Chancellor, Property Observer (Hold): “The December meeting would seem a more opportune time to consider the rate cut.”

Rich Harvey, Propertybuyer (Hold): “Comments by RBA Governor indicate they are still prepared to cut [the rate] further to provide every measure possible to stimulate the economy.”interest rates

Matthew Peter, QIC (Cut): “The RBA has clearly communicated that it intends to ease monetary policy at its November Board meeting. This will include a cut in the cash rate to 0.1%. The RBA wishes to reinforce fiscal policy with further support to businesses and households in the form of lower interest rates and ample access to credit.”

Cameron Kusher, REA Group (Cut): “This move basically looks inevitable at this stage what will be much more interesting than the cut is what else the RBA announces along with that decision such as buyer longer-dated bonds or any other measures they may choose to proceed with.”

Jason Azzopardi, Resimac (Cut): “RBA indicated further easing of monetary policy will stimulate post growth as lockdowns are eased.”

Christine Williams, Smarter Property Investing P/L (Hold): “After a projected 12 months of stability after Covid 19 I believe stakeholders will insist on increasing rates.”

Felipe Pelaio, St George Bank (Cut): “Since September, we were of the view that the RBA would further ease monetary conditions. The economic outlook was looking weaker than the RBA was forecasting. In October, Governor Phillip Lowe’s speech indicated the possibility of further easing, driving market consensus closer towards our view of a rate cut in November. The minutes of the October meeting gave further indications the RBA would likely ease in its next meeting. Having heard the Governor and read the minutes, we believe the cut to the cash rate will come in November. At the same time, there should be a reduction to the 3-year bond rate target and changes to the rate on the Term Funding Facility. Further stimulus should be delivered by a fall in the Exchange Settlement Account (ESA) rate from 10 bps to 1 bp. 33719931_l

Also, we believe the RBA will implement a large-scale bond-buying program to exert downward pressure on the longer end of the yield curve. We expect economic conditions to remain subdued for the next three years, at least. Currently, the RBA targets the 3-year bond yield as it believes this is the time frame necessary for the economy to recover. Governor Lowe has previously indicated that when the economy recovers, the board will first lift QE policies before lifting the cash rate. For these reasons, we believe the cash rate will be lowered in November and remain at this level until at least the end of 2022.”

Dale Gillham, Wealth Within (Hold): “The Australian dollar is holding nicely just above $0.70 USD and this is good for Australia. Given this, I think there is no need for rates to change in the short term.”

Other participants: Alison Booth (Hold), ANU. Malcolm Wood, EL&C Baillieu (Cut). Tim Reardon, HIA (Cut). Alan Oster, NAB (Cut). Noel Whittaker, QUT (Cut). Sveta Angelopoulos, RMIT (Hold). Clement Tisdell, UQ-School of Economics (Cut).

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Kate Forbes

About

Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).
Visit Metropole Melbourne


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