It was only a week ago that Westpac forecast a cash rate cut in October of 15 basis points which would take the cash rate to a new record low of 0.10%, but the big four bank has today revised its forecast.

On Monday, the bank said it now expects the move will be announced at the Board meeting on November 3. 

Westpac Chief Economist Bill Evans said the RBA is now likely to defer its policy changes to November 3 to give the government a chance to "clear the air" to sell its Budget.

"October 6 happened to be Budget Day so our expectation was that it would be another “Team Australia” initiative with both the fiscal and monetary authorities working together to address the economic crisis," Mr Evans said.

"Admittedly, the choice of Budget Day to announce a series of further monetary stimulus steps was without precedent (the Budget is usually on the second Tuesday of the month and the RBA Board meeting is on the first Tuesday of the month).

"But the current crisis is without precedent as the blowout in the Budget deficit from $1 billion in 2028/19; to $85 billion in 2019/20; to an expected $230 billion in 2020/21 testifies."

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Mr Evans said the timing of the speech from the RBA governor originally pointed to the October timing.

"The speech indicated more concern from the RBA with respect to the outlook and emphasised that the Bank had more scope to ease policy," Mr Evans said.

"It came a week before the “black out” period for the October meeting and was the last scheduled speech before that “black out”. Our reading of the speech was that any policy changes were likely to come very soon.

"As we discussed last week, the arguments for the RBA not changing policy near a Budget due to the need to assess the contents of the Budget did not stand up especially in a crisis period."

But Mr Evans said it would make more sense to wait until after the Budget to announce any changes to monetary policy.

"Cutting the cash rate a week before the Budget announcement has a much less significant effect on the government’s capacity to sell the Budget than acting on Budget Day," he said.

"A central bank moving on Budget Day could be interpreted by the government and the bank itself as diverting attention away from the Budget and complicating the government’s task in “selling” the Budget.

"So in the eyes of the authorities, there was probably a trade- off between a “Team Australia” moment and the government having the clear air to sell its Budget without any distractions from other policy makers."

Westpac expects the RBA will cut the overnight cash rate to 0.10%, the three year target bond rate to 0.1%; the rate on the Term Funding Facility to 0.1%; and the rate the RBA pays on Exchange Settlement balances to 0.01%.

The bank also expects the RBA will commit to further purchases of Australian and semi-government bonds in maturities between 5 and 10 years.



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