Blackrock turns uber-dove on Oz interest rates

From The Age:

Australia’s dollar is likely to drop below US70¢ next year as a struggling economy forces the central bank to reduce interest rates by as much as half a percentage point, according to BlackRock.

While the Reserve Bank of Australia is a “reluctant cutter”, weak business capital spending will probably push policy makers into lowering the cash rate by a quarter point in either September or October from a record-low 2 per cent, said Stephen Miller, head of Australian fixed income at the world’s largest asset manager. They could cut again in 2016 if the situation fails to improve, he said.

“The economy has some really challenging headwinds,” Miller said in an interview on Friday in Sydney. “70 cents, I still see that as a reasonable target by the end of this year and I think it probably goes lower in 2016.”

Yep. But not bearish enough. When iron ore cracks to new lows later this year all bets will be off as income and capex shocks merge with slowing housing. MB’s forecasts remain 1% or below in the cash rate by year end 2016 and 60 cents on the dollar.

That’s before the next global shock!