NAB shreds cash rate forecast

NAB now calling for three rate cuts over the next nine months:

“Post the national accounts – not surprisingly – we have not materially changed our forecasts.

That said, we are increasingly worried about downside risks.

With tax cuts making little impact on consumer spending — and probably won’t in the near term — and rate cuts taking time to impact we continue see a need for further fiscal stimulus, through new infrastructure spending or the pull forward of tax cuts.

…Our internal data also highlights the risk that tax refunds have done little to boost spending, while business investment remains weak and the dwelling cycle could well be deeper than previously forecast. The international outlook also is not inspiring confidence,” Mr Oster said.

With the government seemingly reluctant to further boost fiscal policy in the near term we are moving to insert another cut into our rate profile

…The NAB business survey points to continued weakness in private demand, while our internal data suggests that rate cuts and tax refunds have done little to boost consumer spending in July and August as was hoped.

House prices have picked up in a number of cities, which should help limit further wealth effects on consumer spending, but leading indicators suggest that the sharp downturn under way in residential construction could be deeper than previously forecast.

We continue to see the need for additional fiscal stimulus, through new infrastructure investment, cash hand-outs and/or the pull-forward of tax cuts.

Unless something meaningful is done on fiscal policy we would not rule out another cut — bringing the official cash rate to 0.25 per cent by mid-2020.”

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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