Some Consider 1.5% Australia Rate Is Possible

How much can the Reserve Bank of Australia cut interest rates? The most accurate forecaster is among the most dovish.

The RBA is set to cut rates to 1.5 percent in the third quarter, from a record-low 2.25 percent, said Stephen Koukoulas, managing director of Canberra-based Market Economics Pty., and a former adviser to ex-Prime Minister Julia Gillard. The majority of economists surveyed by Bloomberg News say the central bank will cut to 2 percent on Tuesday and hold borrowing costs unchanged for at least a year. Overnight indexed swaps are pricing in a 1.75 percent rate by August.

Unemployment will worsen from a 12 1/2-year high in the next six months after business spending slumped in an economy struggling to rebound after the mining boom ended, Koukoulas said. The RBA has little to worry about in terms of inflation, as data last week showed the weakest wages growth on record.

Bloomberg