RBA to cut to 0.25% and launch QE

The end of the housing downturn has reduced the risk of a recession and we expect GDP growth in Australia to edge up from 1.7% this year to 2.0% in 2020. However, that’s still well below potential and we expect the unemployment rate to climb further. The consensus is that inflation will rebound next year but we consider it more likely that it will fall further below the RBA’s target. And with banks increasingly reluctant to pass on any reductions in official interest rates, the RBA still has more work to do. We now expect the RBA to cut rates to 0.25% by early next year and to launch quantitative easing. Concerns about a fresh housing bubble forming will probably be brushed aside as credit growth is set to remain weak. In New Zealand, we expect GDP growth to slow from 2.2% this year to 1.5% as the external environment becomes less favourable. The RBNZ may slash rates to 0.5% by mid-2020.