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Australia central bank seen pausing after back-to-back rate cuts: poll

EconomyJul 22, 2019 03:06AM ET
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By Swati Pandey

SYDNEY (Reuters) - Economists overwhelmingly expect Australia's central bank to keep its cash rate at a record low 1% next month but predict at least one more cut later this year with overall growth and inflation tipped to remain benign.

The Reserve Bank of Australia (RBA) chopped its benchmark rate twice since June with an eye on the unemployment rate which is slowly ticking higher. The cuts led banks to lower mortgage rates which in-turn has helped in an early revival of the country's subdued housing market.

Australia's newly re-elected government of Prime Minister Scott Morrison has also chimed in, offering tax rebates to millions of households in a bid to spur consumer spending.

Still, economists expect more monetary stimulus will be needed, though not immediately.

All but one of 40 economists surveyed over the past week expect the RBA to hold the cash rate at its Aug. 6 monthly meeting.

And a slim majority, or 25 of 40 surveyed, see the cash rate at 0.75% by year-end. Standard Chartered (LON:STAN) and Goldman Sachs (NYSE:GS) are the only two banks to predict rates at 0.50% while 13 expect the central bank will stay put at 1.00%.

The outlook is mostly unchanged from the previous poll in late June.

The RBA expects the economy to start generating wage pressures only when unemployment falls to 4.5% or below from 5.2% now.

In light of those expectations, economists believe the RBA will need to cut again.

"More stimulus will be needed as recent rate cuts provide only a modest boost to household income," NAB economists said in a note on Monday.

RBA research suggests the two back-to-back rate cuts since June will boost Australia's gross domestic product growth by 0.25-0.4 percentage point over two years and lift inflation by only 0.1 percentage point.

"This is a welcome boost to income considering that growth has been sluggish over recent years, but is still comparatively modest," NAB noted.

"This reinforces our view that further stimulus will be needed to support the economy, in the form of another rate cut by November and fiscal stimulus beyond the legislated personal income tax cuts."

Australia central bank seen pausing after back-to-back rate cuts: poll
 

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