Will the RBA change the cash rate in October?

^{Photo by Kon Karampelas on Unsplash}

Australia's central bank meets today to discuss the possibility of a change to the cash rate for October.

Today's Reserve Bank (RBA) meeting is one the most anticipated in recent months, with the possibility of a cut increased due to comments from RBA Deputy Governor Guy Debelle. 

However, a cut to the cash rate this afternoon still seems unlikely - a Bloomberg poll revealed 20 of 24 analysts forecasted no change to the rate. 

Economists widely predicted the RBA will hold fire today to give precedent to the Federal Budget, set to be delivered at 7.30pm tonight. 

NAB, Westpac, and 14 of 24 Bloomberg-polled analysts instead expect the RBA to cut the cash rate by 15 basis points in November, taking it to a new record low of 0.10%. 

Check out the decision here.

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Westpac chief economist Bill Evans had previously forecasted an October rate cut, but readjusted this due to the $230 billion deficit the government is expected to announce. 

"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," Mr Evans 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."

Should there be no change to the rate today, it will be the seventh consecutive month without a cut, after a tumultuous March saw two rate cuts and implementation of a quantitative easing program, as the RBA attempted to thwart the economic fallout of COVID. 

Since then, the central bank has run the narrative the cash rate has reached its effective floor and ruled out negative interest rates. 

But a speech from Dr Debelle two weeks ago suggested a change to this narrative, with the RBA Deputy Governor suggesting the current support measures could be altered. 

"As the outlook for the Australian economy unfolds, the Board will continue to assess the merits of the range of monetary options to best support the economic recovery." Dr Debelle said.

These comments led NAB economists to forecast a cut to the cash rate in October or November, with November the more likely to avoid clashing with the budget. 

"NAB expects these further easing measures to be announced at either the October or November Board meetings, noting that the October Board meeting is the same day as the Budget, while the November SMP after the November Board could be an avenue to communicate its messaging to a wider audience," they said.

NAB noted the impact of such a rate cut would be marginal, as despite the official cash rate target currently sits at 0.25%, the RBA's alternative easing measures have pushed the interbank overnight cash rate down to 0.13%.

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Disclaimers

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): Great Southern Bank, 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.
• If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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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