Interest Rates

Westpac now expects the Reserve Bank to cut the cash rate by 25bps in both August and November this year. Westpac have revised down our GDP growth forecasts for 2019 and 2020 from 2.6% to 2.2%. With the slower growth profile they now expect to see the unemployment rate lift to 5.5% by late 2019. That makes a strong case for official rate cuts to cushion the downturn and, in turn, meet the RBA's medium term objectives.

The Reserve Bank recently revised down its growth forecasts for 2019 and 2020 from 3.25% and 3.0% to 3.0% and 2.75% respectively. It also cut its estimate for 2018 from 3.5% to 2.75%. Momentum in 2018 slowed dramatically through the year. The annualised growth rate in the first half was 4% whereas in the second half we estimate that the pace slowed to 1.5%. Moving from a 1.5% pace to a 3% pace in 2019 seems to be a very large stretch. Westpac's growth forecast in 2019 and 2020 has been a much weaker 2.6% in each year but even that number now appears too high. Westpac's new forecast for GDP growth in 2019 and 2020 is 2.2%.