So, once again, mainstream economists are catching up to MB. This afternoon, Bill Evans of Westpac, who orignally saw this rate easing cycle constituting 100bps, is now calling for another 100bps. And let’s not forget that Bill Evans has led the pack on this cycle.
Bravo I say and about time. His reasoning is as follows:
- The Reserve Bank Board meets next week on June 5. We expect that the Board will decide to further reduce the overnight cash rate from 3.75% to 3.50%.
- We now expect that the low point in this easing cycle will be 2.75% rather than the 3.25% which had previously been our expectation. We expect further cuts in July and August to be followed by a final cut in Q4. (SVMR) and the offi cial cash rate now being 140bps wider than in 2007, we assess that the neutral rate has fallen from 5.5% in 2007 to 4.1%. That puts the official cash rate only 0.45% below neutral today – certainly only mildly accommodative.
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His reasoning is that we’re all suffering a European shock. Sure we are. But let’s not forget the interest rate shock brought on by the banks in April, the fiscal shock scheduled for the second half, and the China shock bearing down on the terms of trade shall we.c
You bet we need cuts and they’re coming, en masse, as predicted in January.
Update: NAB also just hanged its call to a cut next week.
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