Business

JP Morgan predicts 0.5% cash rate by 2020

J.P. Morgan is predicting Australian interest rates could fall to as low as 0.5% by 2020. (AAP)

JP Morgan has made the most aggressive prediction yet on interest rates, forecasting four rounds of cuts that will leave rates at 0.5 per cent by mid-2020.

J.P.Morgan has predicted the Reserve Bank of Australia will cut interest rates by a whopping one per cent through a series of four rate cuts over the next year.

Wednesday's forecast by chief economist Sally Auld, senior economist Ben Jarman and fixed income strategist Tom Kennedy is the boldest yet for rate cuts.

Most banks are predicting rates will be cut 50 basis points by mid-2020, with Westpac economist Bill Evans on Friday predicting they could would reach 0.75 per cent by the end of the year.

But Ms Auld, Mr Jarman and Mr Kennedy went even further, saying that core inflation has fallen, global growth has deteriorated and there's a chance the US could cut rates.

"Envisage a scenario in which the Fed is cutting in response to weaker growth; in such circumstances the RBA is unlikely to stop at 50bp of easing," they wrote on Wednesday.

"Our sense is that the combination of global headwinds, and the RBA having slipped behind the curve, could therefore be decisive in bringing four cuts, rather than three. ...

"The structural headwinds facing the domestic economy - a deleveraging of household balance sheets, persistently low incomes growth, a recalibration of lending standards and a rebalancing of economic growth away from housing-related activity - all demand a long period of low rates."

The RBA has kept interest rates on hold at 1.5 per cent for a record 30 consecutive meetings but is expected to cut soon after confirming its downgraded near-term economic growth forecasts and trimming its mean inflation targets.

It will announce its next decision on rates on Tuesday.

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