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Will the Reserve Bank cut the cash rate again in October?

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According to the latest Westpac Banking Corp (ASX: WBC) Weekly economic report, the banking giant expects the Reserve Bank to cut the cash rate on 6 October.

Chief Economist Bill Evans commented: “In a speech on Tuesday, the Deputy Governor of the Reserve Bank gave a fairly clear hint that the Board is set to cut the cash rate and other key policy rates at its October Board meeting.”

This is despite the meeting falling on the same day as the Federal Budget.

Mr Evans explained: “The prospect of the RBA ‘sitting back’ to assess the Budget, which has been seen as the ‘norm’ in previous years is not appropriate for these unique times.”

“We now expect the RBA to cut the overnight cash rate to 10 basis points; to adopt a 10 basis point three year bond target; and to adjust the rate on any new drawdowns of the Term Funding Facility to 10 basis points. All these rates are currently set at 25 basis points, which the Governor has generally described as the effective lower bound for the cash rate,” he added.

When will rates increase again?

If Westpac’s forecasts prove accurate, it will be some time before the cash rate is heading higher again.

The bank is currently forecasting that the cash rate will remain on hold at 0.1% until at least June 2022, which is where its forecast period ends.

In light of this, I think it could be upwards of five years until rates are back to “normal” levels.

As a result, I continue to believe the share market will be the best place to generate an income over the coming years.

But which dividend shares should you buy? Two of my favourite options for income investors are commercial property company and Bunnings landlord BWP Trust (ASX: BWP) and agricultural property company Rural Funds Group (ASX: RFF).

As well as offering generous yields at present, I believe both companies have the potential to grow their earnings and distributions at a solid rate over the 2020s.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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