Evans forecasts interest rate cut for February

THE economist who correctly picked the timing of the Reserve Bank’s last interest rate cutting cycle has tipped a further two cuts next year.

Bill Evans

THE economist who correctly picked the timing of the Reserve Bank’s last interest rate cutting cycle has tipped a further two cuts next year — starting as early as February.

Amid signs that the pace of economic growth in Australia is slowing, Westpac chief economist Bill Evans believes the RBA will make “insurance cuts” in February and March, before raising the cash rate during 2016.

“While we still expect rates to be on the rise in 2016 as the world economy gathers considerable momentum, we now expect the RBA to cut rates further in the early months of 2015 in an effort to bolster domestic demand and lower the Australian dollar before evidence on the world economy becomes clearer around the middle of the year,” he said.

“Accordingly we now expect the RBA to cut rates by 25 basis points in February and again in March prior to another period of stability.” Mr Evans was the first to make the call that the RBA would start a round of rate cuts in July 2011, at a time when many were tipping rates to rise.

Several economists have called rate cuts to resume next year, although the February call is the most aggressive.

According to Goldman Sachs, persistent weakness in the economy, rising unemployment and low inflation will prompt the Reserve Bank to cut official interest rates twice next year, beginning in March.

Goldman Sachs head of economics Tim Toohey said after the weak September quarter GDP this week it would be a challenge for growth to reach the 2 per cent forecast.

That is already well below consensus forecasts for 2.9 per cent in 2015. Goldmans expects growth of 2.9 per cent in 2014.

Mr Toohey said the income shock linked to the slump in commodities prices and the fiscal drag likely to come from cuts in the May budget would contribute to economic weakness.

He expects the RBA will cut official interest rates by 25 basis points in March and again in ­August, taking the cash rate to a record low 2 per cent.

additional reporting: AAP