The RBA will cut interest rates to 0.5% - Westpac Chief Economist

Australia’s central bank will lower interest rates twice more and could adopt a package with the second easing to allow lenders to pass on the reduction in full, Westpac Banking Corp. Chief Economist Bill Evans said.

Evans brought forward his forecast for the next cut to October from November -- saying by then the labor market will have deteriorated sufficiently from Reserve Bank estimates to prompt a move. He added another cut in February that would bring the cash rate to 0.5%.

He cited the Australian dollar providing less support to the economy and the prospect of the Federal Reserve easing among reasons for the change of forecast. The local currency has risen since the RBA’s back-to-back reductions in June and July due to strong commodity prices and the Fed is expected to cut next week.

“Some data releases since May 24 have also highlighted downside risks for demand, wages and the labor market,” he said, referring to Westpac’s last update. “In particular we have been surprised by the response of consumer sentiment to the rate cuts in June/July, having fallen by nearly 5%. Furthermore, our measure of unemployment expectations has also deteriorated markedly.”