RBA will slash rates to 0.75 per cent this year: Westpac economist

The Reserve Bank will go further than previously thought by cutting the cash rate not two, but three times before 2019 is over, according to a leading economist.

Westpac chief economist Bill Evans , who in February became the first top economist from the big four banks to predict two rate cuts this year, said on Friday he now believes the central bank will go further into uncharted territory as it cuts from the long-standing record low of 1.5 per cent.

The RBA will cut the cash rate to as low as 0.75 per cent by the end of the year, Westpac predicts.Credit:AAP

Mr Evans on Tuesday brought forward his prediction for cuts from August and November to June and August. He says this week's comments by RBA Governor Philip Lowe that a June cut was on the cards led him to believe there will also be a 0.25 percentage point reduction in November.

Following the three cuts, the high-profile economist – whose revised prediction was followed by a 0.3 per cent fall in the Australian dollar – then expects the cash rate to stay at 0.75 per cent throughout 2020.

"Our central forecast for the terminal cash rate in this cycle is 0.75 per cent with risks to the downside," Mr Evans said.

Westpac chief economist Bill Evans.Credit:Lisa Maree Williams

"We would certainly see 0.5 per cent as the floor for the cash rate, with QE (quantitative easing) a more effective policy tool thereafter."

Quantitative easing is a monetary tool where central banks buy government bonds and other assets to inject cash into the economy and increase the money supply.

For the cash rate to stay at 0.75 per cent, Mr Evans said the housing market would have to stabilise and there would need to be a sustained confidence boost from a stable federal government in a position to embrace genuine reform.

He said the terms of trade would also have to hold up much better than assumed in budget estimates, and for global trade tensions to ease.

The Australian dollar traded at 68.85 US cents in early afternoon in Sydney, from 69.05 US cents just before Mr Evans' note was released.

The futures market had already fully priced in two rate cuts by December, a conviction that hardened with Mr Evans' note.

AAP

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