Rate cut‘ off the table’

AN INTEREST rate cut is more probable in early November, according to West p ac, with the lender saying the central bank will probably want to scope out the government’s full response to the pandemic.

Westpac chief economist Bill Evans has retracted his initial predictions of a cash rate carving on October 6, saying the Reserve Bank will hold off on its monetary policy decisions to see what economic support will be outlined in the 2020 Federal Budget.

The RBA’s next board meeting to determine whether current policy measures are providing enough support for the economy is on the same day the federal government is expected to reveal its fiscal support measures for the coming year.

Westpac last Wednesday initially tipped the RBA would cut the overnight cash rate by 15 basis points to 0.1 per cent alongside its other policy measures on budget day as part of the “Team Australia” response to the crisis.

The RBA has flirted with the idea of another cash rate cut, sparked by a speech from deputy governor Guy Debelle onSeptember22.

Mr Debelle suggested the central bank was considering further responses to combat the recession caused by COVID-19.

Mr Evans (pictured) said the RBA changing policy settings on the same day could detract from the government’s ability to sell the budget.

“A central bank moving on budget day could be interpreted by the government and the bank itself as diverting attenti on away from the budget and complicating the government’ s task in selling the budget,” he said.

The RBA uses interest rate cuts to ease pressure facing the economy when there is a downturn.

It allows banks and lenders to access liquidity at a lower rate, which can then be passed onto households and businesses in the form of cheaper loans.

The central bank is expected to change its policy settings on November 3, with its threeyear bond yield target, term funding facility and the rate it pay son exchange settlement balances all likely to move to a rate position off 0.1percent.

“We expect that the policy initiatives that we have outlined will now be introduced on November 3, giving thee government adequate time to sell its budget without any distractions coming from monet-ary policy ,” Mr Evans said.

Mr Evans also noted the budget deficit was expected to blow out to $230bn for the 2020/21 period, a direct result from the spending that has oc-curred during the pandemic.