Westpac is forecasting the Reserve Bank of Australia will cut the cash rate to 10 basis points when it meets in October.

The bank is also tipping the RBA will adopt a 10 basis point three year bond target and adjust the rate on any new drawdown on the term funding facility to 10 basis points.

Westpac chief economist said deputy governor Guy Debelle’s speech on Tuesday gave a fairly clear hint the board would cut the cash rate and other key policy rates when it next meets on October 6.

Westpac’s chief economist Bill Evans . James Brickwood

“The Bank is also likely to extend its objectives for bond purchases to include general support for the Australian and semi government yield curves in the five to ten year maturity range. It is likely to leave this commitment open ended at this stage,” he said.

“We have discussed these issues in previous notes but did not expect the action as soon as the next Board meeting as now seems to be the case.”

Westpac said while it was optimistic about the short-term outlook, that wasn’t what was behind the RBA’s thinking.

“It is the medium term projection that the unemployment rate is still likely to be around 7 per cent by the end of 2022 – the Deputy Governor refers to a “slow grind” – and that the shortfall in demand will be” a significant break on the recovery”,” said Mr Evans.

“That outlook is unlikely to change in the November forecast revisions, hence no real case can be made to ‘wait’.”

On Tuesday, NAB said it saw significant risk of the RBA easing policy further by cutting the cash rate, 3-year yield target and TFF rate by 15 basis points to 0.1 per cent, and those measures would be announced at either the October or November Board meetings.


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