Influential Australian business leaders are urging RBA to cut rates in its June 5th meeting:
The chief economist at AMP Capital, Shane Oliver, who is pushing for the cut, said he did not expect it to be fully passed on to borrowers.
“That’s one of the reasons the Reserve Bank should and will cut 50 points,” Dr Oliver said. “The trouble with doing 0.25 points is the banks will only pass on some of it. Westpac could afford to pass on the lot but I can’t see the others doing it.
“Since the board last met, we have seen further deterioration in Europe, universally poor Chinese data, and a turndown in the United States. At home, house prices are turning down again and unemployment is set to climb.”
The futures market is pricing in a drop to 2.75 per cent by August and a cut of more than 0.25 percentage points tomorrow. The pricing reflects a dive in 10-year government bond yields to about 2.8 per cent on Friday, the lowest in 40 years. Increasing concern about the international economy is forcing investors to accept less to park their money with the government, which they regard as relatively safe.
Forex Factory puts the rate forecast to be 3.75% – no cut. So if RBA does go for a 50 basis point cut then it will be a boost for the Australian stock market but AUD/USD will take another leg down.
AUD/USD charts also indicates that there is a greater likelihood Oct ’11 low of 0.9388 tested or broken than the May ’12 high of 1.0433 tested and taken out in the coming days.