Unfortunately for income investors and savers, the economics team of one of Australia's leading banks is tipping the Reserve Bank of Australia to cut the cash rate twice in 2019.
According to the latest Westpac Banking Corp (ASX: WBC) Weekly economic report, the bank has predicted the cash rate will be cut by 25 basis points in both August and November of this year.
The release explains: "Westpac now expects the Reserve Bank to cut the cash rate by 25bps in both August and November this year. We have revised down our GDP growth forecasts for 2019 and 2020 from 2.6% to 2.2%. With the slower growth profile we 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."
Why August and November?
Westpac's team believe that while the forces around a slowing economy, falling house prices, and weak consumer spending are already visible, current forecasts indicate that the Reserve Bank doesn't expect these conditions to persist.
"Recognition of this persistence is likely to take some time, but not too much time. Our preferred estimate would be the August Board meeting."
This is because this timing will allow two further inflation prints which could confirm that "growth remains stuck well below trend, is constraining inflation with little likelihood of achieving the current forecast of 2.25% inflation in 2020. A second cut at the November Board meeting is likely to follow."
What now?
I think there's a strong chance that Westpac's forecasts could prove accurate, which would be bad news for savers and income investors that have funds in savings accounts.
In light of this, I would suggest they consider putting their money to work in the share market with one of the many quality dividend shares on offer such as Westpac, Sydney Airport Holdings Pty Ltd (ASX: SYD), and Accent Group Ltd (ASX: AX1).
