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Westpac backtracks on Budget day rate cut

Headshot of Gerard Cockburn
Gerard CockburnNews Corp Australia
Westpac chief economist Bill Evans expects rates to be cut in November.
Camera IconWestpac chief economist Bill Evans expects rates to be cut in November. Credit: News Corp Australia

One of Australia’s major banks predicts the Reserve Bank won’t cut interest rates until the Federal Government hands down its Budget.

Westpac chief economist Bill Evans has retracted his initial predictions of a cash rate carving on October 6, saying the Reserve Bank will hold off on its monetary policy decisions to see what economic support will be outlined in the 2020 Federal Budget.

The RBA’s next board meeting to determine whether current policy measures are providing enough support for the economy coincides on the same day the Federal Government will reveal its fiscal support measures for the coming year.

Westpac last Wednesday initially tipped the RBA would cut the overnight cash rate 15 basis points to 0.1 per cent alongside its other policy measures on Budget day as part of the “Team Australia” response to the crisis.

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The RBA has flirted with the idea of another cash rate cut, sparked by a speech from deputy governor Guy Debelle on September 22. He flagged the central bank was considering further responses to combat the recession caused by COVID-19.

Mr Evans said the RBA changing policy settings the same day could detract from the Government’s ability to sell the budget.

“A central bank moving on Budget day could be interpreted by the Government and the bank itself as diverting attention away from the Budget and complicating the Government’s task in selling the Budget,” he said.

The central bank is expected to change its policy settings on November 3, with its three-year bond yield target, term funding facility and the rate it pays on exchange settlement balances all likely to move to a rate position of 0.1 per cent.

“We expect that the policy initiatives that we have outlined will now be introduced on November 3, giving the Government adequate time to sell its Budget without any distractions coming from monetary policy,” Mr Evans said.

Mr Evans also noted the Budget deficit was expected to blow out to $230 billion for the 2020/21 period, a direct result from the unprecedented spending that has occurred during the pandemic.

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