RBA to slash its cash rate in half by early next year – Capital Economics

The firm argues that the RBA will cut its cash rate to 0.75% as GDP slows

According to a note by the firm’s senior economist, Marcel Thieliant, it won’t take much for the RBA to start cutting rates based on the April meeting minutes released earlier today. Adding that policymakers appear to be growing increasingly worried about the impact of the housing downturn on the economy and that the central bank is getting less confident in its view that the labour market will continue to strengthen even as the jobless rate dropped to an 8-year low in February.

Thileliant notes that the RBA will cut rates in half to 0.75% i.e. three 25 bps rate cuts, by early next year as economic growth falls well short of a sustainable rate.

There’s certainly been growing calls for the RBA to cut rates and the minutes earlier does hint at that direction. However, I reckon the RBA will only begin to envisage such a scenario should labour market data start turning for the worse in the coming months. And we’ll be getting the first taste of that this Thursday, so there’s your key risk event for the week if you’re trading the Australian dollar.

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