Australia’s growth outlook is set to wilt in the face of a bushfire catastrophe and coronavirus jitters, but a surprisingly resilient jobs market could stay the hand of the Reserve Bank board when it considers a rate cut this week.
The central bank’s board will on Tuesday make its first cash rate decision for 2020, with members widely tipped to delay cutting to a fresh record low 0.5 per cent, despite new economic hurdles emerging over a turbulent summer.
Market expectations of a February cut evaporated from rusted-on certainty in October to an outside chance following a bump in quarterly inflation and improved employment figures last week.
The board at its December meeting signalled a wait-and-see approach when it held the rate at its current record low 0.75 per cent – despite many economists identifying a strong case for a fourth cut in seven meetings.
Subsequently disappointing third-quarter GDP figures, underwhelming retail data, a bushfire emergency and the outbreak of the coronavirus have added pressure on the economy, with economists expecting the RBA to downgrade its forecasts accordingly in Friday’s Statement on Monetary Policy.
For now though, further monetary easing appears to be at least another month away.
“We think the RBA remains live for more rate cuts ahead, given their last meeting in December again reiterated an easing bias, with “the ability to provide further stimulus to the economy, if required”,” UBS’ economists George Tharenou, Carlos Cacho and analyst Jim Xu said in a note.
“(But) the surprising resilience of employment and fall in unemployment, means we see them on hold in February.”
UBS said there remains a high probability of more rate cuts in coming months, a view it says is supported by the absence of any material new fiscal stimulus in the Government’s mid year economic and fiscal outlook in December.
ANZ said despite the likely downgrade to GDP on Friday, the RBA’s forecasts will remain consistent with a “gentle turn”, especially with the positive outlook for a buoyant housing market.
“Along with the recent strength in employment, we think this will keep the RBA from cutting (on Tuesday),” ANZ Research said.
“We think the RBA will wait for more information before moving, which is similar to the approach it took in May and August of last year.”
The February cash rate decision will be announced at 1430 AEDT on Tuesday.