WEEKEND ECONOMIST: Rate cut on demand

With Australia's demand conditions materially weaker and its obvious two-speed economy, we can expect the RBA to have cut the cash rate by a total of 50bps by the end of the September quarter.

The Reserve Bank of Australia’s (RBA) board next meets on April 3. In our minds the case for further cuts following on from the 50 basis points (bps) delivered late last year has already been made. If it were our decision to make, we would certainly move next week. The bank's decision will be finely balanced and as always determined by subjective judgements. For the board to cut rates, it will need to be absolutely comfortable that the threshold for a move which has been clearly communicated in recent statements – that "demand conditions weaken materially" – has been crossed. While we believe that this condition has already been met, we feel that on balance a prudent central bank will decide to wait. Therefore we are maintaining our forecast for the next rate cut to be in May, followed by July.

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