Westpac are still tipping the RBA to cut cash rate by 25bps in March

No surprise from Westpac - they have been consistently tipping a cut in March (after successfully tipping the February cut from back in December last year - kudos to them)

The Reserve Bank Board meets next week on March 3. We expect that it will decide to cut to overnight cash rate by 25bps from2.25% to 2.00%

Arguments that the Bank would wait to assess the impact of the February cut overlook central banks' assessments that monetary policy acts with a long and variable lag.

It is more likely that the Bank has assessed that the situation has changed sufficiently that at least 50bps of cuts are going to be required. The need to trade off risks of over-stimulating the Sydney property market with the need to contain the rise in the unemployment is likely to have been resolved in favour of the labour market.

Under those circumstances waiting for a month or two would seem to be a sub-optimal strategy

More:

  • Developments since the February rate cut have strengthened the case for a cut in March:
  • Unemployment rate from 6.1% to 6.4%
  • Capex survey ...provides the best assessment of likely progress in the rebalancing of the economy away from mining towards non-mining investment ... showed a 12.4% fall in investment expectations in 2015/16 compared to the first estimate for 2014/15 ... the outlook for services investment in 2015/16 points to a 7% fall compared to an 11% lift over 2014/15
  • On the other hand,... strong 8% increase in the Westpac- Melbourne Institute Index of Consumer Sentiment ... perversely, this positive sentiment response may encourage the Bank to move again given that the Governor has been on record as being concerned that cutting rates might undermine the very confidence they would be aiming to boost
  • And then we have the Australian dollar ... Immediately following the (February) cut the AUD traded down to USD0.765 although that level proved to be unsustainable in the near term. That was probably because the Governor gave no guidance in his statement, leaving the market with the perception of a neutral bias... Markets are currently pricing a rate cut next week with a probability of 50% so no move will probably further boost the AUD
  • The policy approach to ensure maximum easing in financial conditions would be to cut rates by 25bps and adopt an explicit easing bias ... such a policy would ensure maximum downward pressure on the AUD