Westpac’s out-of-cycle, 0.20% rate rise for all residential mortgages has provoked a number of investment banks and economists to bring forward their predictions of a RBA rate cut with some now expecting a rate cut as soon as November. According to a Bloomberg poll, six out of twenty-six economists now expect a rate cut in November, among them Macquarie Bank, Goldman Sachs and UBS.
The analysts believe that the mortgage rate hike, particularly if followed by the other banks, will lead to lower economic growth, hence the need for a rate cut. Some have even speculated that this may even be a co-ordinated move that allows for the RBA to cut rates without fuelling an already overheated housing market.
ANZ pointed out mortgage rate rises have been expected by the RBA since the APRA’s banking review that flagged the need for the big four banks and Macquarie to raise more capital ( and and ). Governor Glenn Stevens has previously said, ”If banks raised rates no-one should find that surprising or controversial…the whole point of [APRA changes] was to change the competitive landscape between the majors and the others”. However, Westpac’s rate rise seems to have provided the trigger for investment banks to bring forward or firm up their rate reduction timetables.
Macquarie said “Westpac’s hike all but seals the deal for a November rate cut from the RBA” while UBS sees a November cut as “the path of least regret for the RBA”. Nomura’s Australian fixed income strategist, Andrew Ticehurst, was not quite as certain, saying a rate cut was coming but not in November unless all the banks raised mortgage rates. “Nomura’s house view is for a 25bps RBA rate cut in February, and not this year…But particularly if the other three big lenders follow Westpac’s lead, this would of course increase the possibility that the RBA could respond this year.” Goldman Sachs introduced another consideration when the risk of a severe drought and its effect on growth were brought into the equation.
National Australia Bank and Westpac are holding out as a minority of banks which thinks rate cuts are not a given. “We find it difficult to mount a case for further policy easing on purely domestic grounds and view market pricing for another 25bp cut over the coming 6 months as overly pessimistic”, said NAB. Westpac’s chief economist, Bill Evans, is on record as saying interest rates will be on hold at 2.00% throughout 2016.
On the Friday prior to Westpac’s mortgage rate move, cash rate markets implied a 20% probability of a November cut. Over the course of the following few days, market pricing increased the odds to around a 40% chance.