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The prospect of further RBA rate cuts has increased off the back of the federal government’s ballooning deficit and its limited ability to implement additional fiscal actions.
According to Westpac chief economist Bill Evans, the sharp increase in national debt will constrain the government’s ability to exercise further fiscal policies and place the emphasis of stimulus on the RBA.
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“... [monetary policy] will need to be seen to be responding when the unemployment tracks from 5.5 per cent to 8.25 per cent over the course of the next 12 months,” he said yesterday.
Westpac expects the RBA to hold steady when it meets next month but resume its easing policy in August and reduce the cash rate to 2 per cent by the end of the year.
