The Reserve Bank of Australia may deliver another interest rate cut as soon as this week.
Many economists expect the RBA will lower the cash rate by 25 basis points for the second month in a row, taking it to a new low of 1.0 per cent.
AMP Capital chief economist Shane Oliver said it is a close call as to whether the RBA acts on Tuesday or waits until August.
“But rate moves usually come in at least twos and the risks to the economic outlook have increased so it’s probably best to get another cut out of the way and then the RBA can sit back a bit and see whether it’s working,” Dr Oliver said.
“Ultimately, we remain of the view that the RBA will then cut again to 0.75 per cent around November and then to 0.5 per cent around February next year.”
HSBC’s Australia and New Zealand chief economist Paul Bloxham said it is quite possible the RBA will cut in July, but there are a number of reasons why a move in August is more likely.
Mr Bloxham said the RBA may seek a little more time to evaluate the impact of its June cut, and waiting a month would provide more information on other economic developments both locally and globally.
“The RBA has made it clear that it is not yet willing to consider unconventional policy tools, but has also noted that its lower nominal bound for the cash rate is probably around 50 basis points – so it is rapidly running out of room to cut,” he said.
“With less firepower available, the central bank may want to spread the cuts out.”
The RBA’s rate decision will dominate the attention of Australian financial markets this week.
Local shares are expected to start the week higher on Monday, following solid gains on Wall Street on Friday
Banks shares contributed to the gains after the US Federal Reserve gave the country’s 18 biggest banks permission to pay more dividends and buy back more of their own stock.
Ahead of talks between US President Donald Trump and Chinese leader Xi Jinping, the benchmark S&P 500 gained 16.84 points, or 0.6 per cent, to 2,941.
At the G20 on Saturday, the two nations agreed to restart trade talks.
CommSec chief economist Craig James says that’s good news for Australia, and so too is Russia and Saudi Arabia agreeing to extend their deal with OPEC on reducing oil output.
“We still have to have resolution to the US and China trade talks but the fact that they’re talking is positive,” he said.
The developments mean the local market could begin between 30 and 40 points higher when trading resumes, Mr James said.
Meanwhile, RBA governor Philip Lowe will speak at a business dinner in Darwin on Tuesday night, following the board meeting and announcement of the rate decision.
Economic data being released this week includes building approvals, international trade and retail trade figures for May.