Westpac

Westpac interest rate forecasts

The RBA lowered the cash rate by 25 basis points to 4.10 per cent at its February board meeting. The decision to reduce the rate from a 13-year high reflects the central bank's assessment that monetary policy no longer needs to remain as restrictive following a benign December quarter inflation report. Westpac Chief Economist Luci Ellis had expected the move, saying in her most recent note that the RBA would draw confidence from the decline in the trimmed mean and would "act accordingly".

The RBA's accompanying statement gave a balanced assessment of the risks facing the economy, saying the outlook for domestic activity and inflation remained uncertain. Likewise, geopolitical and policy uncertainties abroad were "pronounced". The central bank noted that recent labour market data had been unexpectedly strong, while it also revised up its forecasts for economic growth and noted the risk that if monetary policy is eased too much too soon, the disinflation trend could stall. "This is a cautious cut," said Westpac Senior Economist Justin Smirk. "On balance, they're saying that they see the risks around inflation as roughly equal on both sides, and they're still concerned about it being trapped above their target band. "At this point in time the RBA is signalling that this is just one rate cut - don't expect anything more until we see more data."