By Swati Pandey
SYDNEY (Reuters) – Australia’s central bank will likely hold its cash rate at a record low of 0.75% next week but cut at least once more later this year, a Reuters poll showed, amid signs the country’s economy was still stuck in a slow lane.
A majority of the 32 respondents expect the Reserve Bank of Australia (RBA) to keep its benchmark rate at 0.75% at its Feb. 4 policy review. Most economists pushed back their prediction to April, from February, just last week after better-than-expected employment data for December.
As many as 23 of 32, or nearly 72%, forecast rates at 0.5% before June with three predicting deeper cuts to 0.25%.
A median of 29 respondents expects the cash rate will remain at 0.5% through end-2020 and then ease to 0.25% by early next year.
Economists’ predictions align with market pricing which shows little chance of a move in February. Futures are predicting a 60% chance of a cut to 0.50% in April. <0#YIB:>
Australia’s A$1.95 trillion ($1.33 trillion) economy is in its 29th year of recession-free expansion, the longest boom among developed countries. But economic risks have intensified over the past year, with growth slowing, inflation lukewarm and unemployment ticking higher.
“We expect that the RBA will lower its 2020 growth forecast,” Westpac chief economist Bill Evans said in a note, predicting two cuts this year – April and August.
Inflation ticked higher in the final quarter of 2019, data showed this week, though core measures remained subdued despite three interest rate cuts last year.
The RBA expects the economy to start generating inflationary pressures only when unemployment falls to 4.5% or below. That could prove challenging given the jobless rate is now at 5.1% from as low as 4.9% in February.
But RBA’s rate cuts have so far done little to boost growth.
Consumer sentiment surveys pointed to deepening pessimism in January as households fretted about the economic impact of a prolonged and devastating bushfire season that has so far killed 33 people and destroyed thousands of homes.
The RBA will also provide its updated quarterly forecasts for the economy and inflation next week.
Analysts expect small downgrades for near-term growth due to the impact from bushfires and a rapidly spreading coronavirus that has left parts of China in a lockdown. China is Australia’s largest trading partner.
“Westpac has adjusted its GDP forecasts for the bushfire effect, lowering GDP growth in both the December and March quarters by 0.1%, reflecting the impact on tourism; agriculture; and regional retail of the bushfire crisis,” Evans said.
“The second risk to the growth outlook is the coronavirus outbreak.
(Editing by Jacqueline Wong)