Westpac: Outlook On RBA Monetary Policy Easing in 2020

Australia’s financial services provider, Westpac, provided a forecast on the Reserve Bank of Australia (RBA) monetary policy stance for the year 2020. As of now, Westpac is expecting two rate cuts to 0.25% from RBA by the first half of 2020, followed by Quantitative Easing (QE) on the second half.   

Prior to this year, the last interest rate cut by RBA was in August 2016, however the central bank made three rate cuts throughout this year, a total of 75 basis point from 1.5% in 2016, to 0.75% in 2019. Previous statement from RBA hinted that they will maintain the cash rate at 0.75% for the rest of the year. 

Westpac further emphasized that current cash rate is unable to ensure Australia’s economy moving in line with RBA’s targets in terms of growth, inflation and unemployment. However, RBA previously emphasized on the negative impact of interest rates being too low, specifically at 0.25% as the interest rate paid on RBA reserves are at 25bp below the current rate. This would mean that a prevailing of 0.25% interest rate would be at zero for the Reserve Bank. Therefore, aside from rate cuts, RBA still have the option to carry out QE as an alternative which includes purchase of government securities to further its policy easing. 

Rate cuts and other monetary policy easing was carried out by most of the central bank around the world, mainly to tackle global economy slowdown, arising from few aspects such as global recession and US-Sino trade war. Australia’s economy is highly affected by the trade war between US and China, as China is Australia’s largest trading partner, which accounts up to 24% of its total trade.