RBA Rate at 1% Tipped by Macquarie

The official cash rate is likely to fall to 1% or lower, as a lack of fiscal policy from the government places the onus on lifting demand on a weaker currency and the Reserve Bank, Macquarie Bank says.

The investment bank’s head of economic research, James McIntyre, says that without government policy support, the RBA will be forced to cut rates further as it fights disinflation.

“With weak income growth a demand boost is needed,” he says. “A weaker currency or fiscal policy boost are the two available options.”

Government support appears unlikely, and the currency is unlikely to fall on its own because global investors are drawn to the Australian dollar for its relatively high returns, given the ultra-low interest rates worldwide.

The RBA will therefore reduce the cash rate to 1% – a 75 basis-point fall from its current record low of 1.75% – or lower to keep a lid on the currency, McIntyre says.

The assessment is the lowest among Australia’s major banks. Commonwealth Bank, ANZ and Westpac have all forecast a cut to 1.5% by the second quarter of 2017, while National Australia Bank has the rate remaining at 1.75%.

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