Westpac has back flipped and now expects the Reserve Bank will cut the cash rate in November instead of October.
It was only a week ago that Westpac forecast a cash rate cut in October of 15 basis points which would take the cash rate to a new record low of 0.10%, but the big four bank has today revised its forecast.
On Monday, the bank said it now expects the move will be announced at the Board meeting on November 3.
Westpac Chief Economist Bill Evans said the RBA is now likely to defer its policy changes to November 3 to give the government a chance to "clear the air" to sell its Budget.
"October 6 happened to be Budget Day so our expectation was that it would be another “Team Australia” initiative with both the fiscal and monetary authorities working together to address the economic crisis," Mr Evans said.
"Admittedly, the choice of Budget Day to announce a series of further monetary stimulus steps was without precedent (the Budget is usually on the second Tuesday of the month and the RBA Board meeting is on the first Tuesday of the month).
"But the current crisis is without precedent as the blowout in the Budget deficit from $1 billion in 2028/19; to $85 billion in 2019/20; to an expected $230 billion in 2020/21 testifies."
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Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Mr Evans said the timing of the speech from the RBA governor originally pointed to the October timing.
"The speech indicated more concern from the RBA with respect to the outlook and emphasised that the Bank had more scope to ease policy," Mr Evans said.
"It came a week before the “black out” period for the October meeting and was the last scheduled speech before that “black out”. Our reading of the speech was that any policy changes were likely to come very soon.
"As we discussed last week, the arguments for the RBA not changing policy near a Budget due to the need to assess the contents of the Budget did not stand up especially in a crisis period."
But Mr Evans said it would make more sense to wait until after the Budget to announce any changes to monetary policy.
"Cutting the cash rate a week before the Budget announcement has a much less significant effect on the government’s capacity to sell the Budget than acting on Budget Day," he said.
"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.
"So in the eyes of the authorities, there was probably a trade- off between a “Team Australia” moment and the government having the clear air to sell its Budget without any distractions from other policy makers."
Westpac expects the RBA will cut the overnight cash rate to 0.10%, the three year target bond rate to 0.1%; the rate on the Term Funding Facility to 0.1%; and the rate the RBA pays on Exchange Settlement balances to 0.01%.
The bank also expects the RBA will commit to further purchases of Australian and semi-government bonds in maturities between 5 and 10 years.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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