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Major bank predicts two rate cuts in 2017

by Tamikah Bretzke10 minute read

Persistently low inflation and a subdued growth outlook are expected to “prompt the RBA to make two more 25bp cuts to the cash rate in H2 2017”, a big four bank has predicted.

NAB’s Monthly Business Survey for September 2016 indicated that the consistent performance and encouraging overall confidence among businesses across most industries suggested a “degree of resilience to external uncertainties”.

The business confidence index marked a steady performance by rising six points in September, while business conditions rose by eight points from seven.

Despite positive overall performances, however, disappointing results in the retail sector were found to warrant “close monitoring over coming months”.


“Weakening retail conditions are a significant risk to our outlook, especially considering that consumption accounts for more than 50 per cent of Australian GDP,” said Alan Oster, NAB chief economist.

The report also noted that beyond the near-term, the outlook was uncertain, “particularly as the impetus from resource exports and the housing construction cycle starts to fade”.

It added that low inflation rates to prompt the RBA to make two more cuts to the cash rate in the second half of 2017 to “help firm up growth and stabilise the unemployment rate”.

Mr Oster said: “There was no hint that the RBA’s interest rate cut in early August had any further material impact on confidence in September after seemingly providing some support in August, although the counterfactual is impossible to measure,” said Mr Oster.

“Overall, while we are somewhat cautious about the narrowing of the industry base underlying business conditions, results from the survey remain reasonably consistent with our pre-existing views of the economy – as far as it relates to the near-term outlook. It suggests a multi-speed economy, but one where most key non-mining sectors are performing well in the near-term,” he added.

However, the NAB chief economist warned that beyond the near-term, the major bank still expects the economy “to slow into 2018 as momentum from commodity exports, housing construction and AUD depreciation is lost”.

He added: “Ongoing low inflation, combined with a more subdued growth outlook, is expected to jolt the RBA into action, cutting the cash rate by 25 bp two more times in H2 2017,” he concluded.

[Related: RBA ‘shouldn’t just rely on low interest rates’ to assist economy]

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