Two interest rate cuts to come? BHP and Rio hope so

Westpac’s  (ASX: WBC) Rob Whitfield has predicted that despite the cash rate being kept on hold by the RBA on Tuesday, there will likely be two more rate cuts worth 0.25 percentage points before the current easing cycle is finished.

After the official cash rate was cut last month from 3%, the Australian dollar (AUD) has fallen in value significantly to a new 30-month low, which has largely benefited shares in a number of Australian companies such as QBE Insurance  (ASX: QBE), BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). Having fallen from around $US1.07, the AUD has sunk to as low as US94 cents. However, whilst the RBA singled out the AUD, it stated that it was still high – therefore, should the dollar remain at current levels, it is likely that further rate cuts will occur.

Whilst Westpac’s chief economist Bill Evans has forecast three further rate cuts, Whitfield has suggested that three may be ambitious and “quite aggressive from here”, but does think there will still be two to come.

In comparison to the cash rate however, the variable home loan rates of the major banks remain quite high which can be partially attributed to high funding costs experienced in the industry. Last month, the ANZ (ASX: ANZ) became the first bank since 2008 to pass on a higher rate cut than the RBA, whilst competitor National Australia Bank (ASX: NAB) made suggestions that it would pass on higher rate cuts out of sync with the central bank. Meanwhile, as Westpac maintains the highest standard variable home loan rate out of the big four banks sitting at 6.26%, it is now also under pressure to cut rates out of cycle.

Foolish takeaway

Despite hopes of further rate cuts, Whitfield has predicted that demand for loans will remain low until they are passed on. Should more cuts be passed on, the banks could start to see higher demand for loans, and hence, higher revenues.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!