RBA’s cash rate to stay at record low for years

Westpac has tipped the Reserve Bank’s cash rate to stay at a record low of 0.25 per cent until at least the end of 2023.

Westpac has tipped the Reserve Bank’s cash rate to stay at a record low of 0.25 per cent until at least the end of 2023, with its bond-buying signalling a holding pattern on the key interest rate.

The forecast comes after RBA governor Philip Lowe on Tuesday indicated he expected its three-year bond target to remain in place for a “number of years”.

Westpac chief economist Bill Evans on Friday said the “choice of the three-year bond target rate as the same as the cash rate target is strategic”.

“It sends a clear message that if the bank is prepared to purchase three-year bonds at the overnight cash rate it is reasonable to expect that it is comfortable with the cash rate holding at 0.25 per cent for the full three years.”

He said if the RBA were to lift its bond yield target rate the timing for a cash rate increase would be brought forward.

“The arbitrage between swap markets and the bond rate would pin point that expected timing.”

Westpac expects GDP growth to contract by around 9.5 per cent in the first half of 2020, and by 5 per cent over the full year. That is a slightly rosier view than the RBA’s forecast for a contraction of 10 per cent in the six months to June 30, and 6 per cent over the year.

Westpac tips the unemployment rate to hold around 6 per cent in 2021-23, with wages growth slowing to an annual pace of 1.5 per cent by mid-2021 and failing to return to pre-crisis rates of 2.5 per cent by the end of 2023.