Two RBA rate cuts tipped

Experts forecast decrease as economy takes hit

A TORRID weekend for a coronavirus-rattled global economy has firmed market expectations for a Reserve Bank rate cut this week, with local economists clamouring to tip back-to-back reductions in March and April.

Market expectations for a 25 basis point cut at today’s Reserve Bank board meeting blew out from 18 per cent on Friday to a certainty yesterday morning following a weekend marred by poor data out of China and a virus-driven rout of global stocks.

Australian equities – fresh off their worst week since the GFC – plunged almost 3 per cent to a new 10-month low by noon yesterday as the coronavirus fallout hammered the local bourse for a seventh trading day.

Wall Street is also expected to take an early hit after troubling manufacturing data from China further dented a fragile global economic sentiment. The weekend’s PMI survey showing business activity in the Chinese economy fell to a record low last month.

The developments kicked a number of local economists off the fence yesterday, with many bringing forward predictions of the Reserve Bank’s next cut tomorrow. Westpac had on Friday reaffirmed its guidance there would be “no excitement” at today’s RBA board meeting but now expects the RBA to cut the cash rate by 0.25 percentage points to a record-low 0.5 per cent.

Chief economist Bill Evans ( pictured) said that was likely to be followed up by a second cut to 0.25 per cent at the April board meeting. This stance was mirrored by St George chief economist Besa Deda, who also said a quantitative easing policy was “increasingly likely to be deployed around mid year.”

Royal Bank of Canada had initially pushed its expectations of a cut from February to June but now also expects the RBA to go back-to-back in March and April.

NAB’S expectation of a dual cut March-april follows its previous prediction for April and June, one that already factored in an underperforming local economy.

Australia’s interest rate has already been lowered three times to 0.75 per cent last year in a bid to free up cash for household budgets.

AMP’S Shane Oliver agreed the run of economic data since the last RBA meeting had been mostly soft as retail sales, construction and business investment fell, confidence remained weak, poor wages growth continued and unemployment and underemployment rose.

The summer’s bushfires have also added pressure.