On Tuesday the Reserve Bank of Australia will meet once again to decide on the cash rate.
Last month the central bank met and left rates unchanged at 0.25%.
However, this followed emergency cuts in the weeks prior to the meeting that were made in response to the coronavirus pandemic. So things could potentially be different this time around.
Will the Reserve Bank cut rates tomorrow?
According to the latest ASX 30 Day Interbank Cash Rate Futures for May 2020, the market is currently pricing in a 62% probability of a rate cut to zero on Tuesday.
I would interpret this as the market feeling that a rate cut is reasonably unlikely but certainly in play tomorrow.
Though, Westpac Banking Corp (ASX: WBC) certainly doesn't expect the Reserve Bank to budge on rates.
According to its latest Westpac Weekly, chief economist Bill Evans believes the cash rate will remain at 0.25% until at least the end of 2023. Yes, you read that correctly. Westpac has forecast over three and a half years of rates at this record low.
The banking giant believes this will be the case due to the unemployment rate (and other measures of spare capacity in the labour market) remaining well above the Reserve Bank's target rate for the next few years.
Mr Evans explained: "With the Governor indicating that marked progress toward full employment (4.5%) would need to be achieved before the cash rate would be increased our timeline of "not before December 2023" seems quite realistic."
"We also noted that central banks no longer see the need to be as "pre-emptive" as they were in previous cycles with ample evidence that inflation is slow moving precluding the risk that the central bank will find itself well "behind the curve"," he added.
How to beat low rates.
While this will be good news for borrowers, it is another blow to income investors contending with low interest rates.
But don't worry, because there are plenty of quality dividend shares that will help you beat low rates.
At current prices I think Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS) would be great options. They both offer generous yields and potentially strong share price returns over the coming years.
