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RBA urged to ‘leave fuel in the tank’

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RBA urged to ‘leave fuel in the tank’

johnkolenda johnkolenda
Charbel Kadib 3 minute read

The head of a mortgage aggregator has called on the Reserve Bank to refrain from hastily exhausting its monetary policy tool before understanding the full extent of global economic developments.

The Reserve Bank of Australia (RBA) yesterday decided to cut the official cash rate to 1.25 per cent, marking the first monetary policy adjustment since August 2016.

The monetary policy stimulus has come amid flat inflation growth, subdued wage growth, weakening labour market conditions, and continued weakness in the credit and housing space.

Most analysts are expecting the RBA’s June decision to be the first of several cash rate reductions in 2019.

The majority (59 per cent) of analysts surveyed for Finder.com.au’s RBA Cash Rate Survey have predicted two cuts this year, while 22 per cent forecasted three cuts before December.

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Moreover, global investment bank JP Morgan recently revised its monetary policy forecasts to factor in four cuts by mid-2020, which would bring the cash rate to 0.5 per cent.

However, managing director of mortgage aggregator Finsure Group John Kolenda has said the central bank should not have to “carry the burden of responding to an economic downturn”.

Mr Kolenda noted that there are alternative mechanisms that could be used to stimulate the economy, adding that the RBA should only cut the cash rate twice.

“The RBA will need to leave some fuel in the tank going forward and the interest rate levels aren’t the only tool to stimulate the economy,” he said.

Mr Kolenda flagged risks to global economic stability, stating that the RBA may need room to move if conditions deteriorate.  

“What happens with future rate movements by the RBA will largely depend on whether there is a deeper deterioration in the US-China trade war and the impact that has on the global economy and the flow-on effect in Australia,” he added.

The Finsure head said that if economic conditions do deteriorate, policymakers could take targeted action to stimulate the economy.  

“Some of the initiatives they have already announced, such as the First Home Loan Deposit Scheme, tax cuts and infrastructure spending, will flow through the economy to help negate any global economic headwinds,” he said.

Mr Kolenda also noted the effect of macro-prudential regulations on market activity.

“It should also be remembered that while there is so much focus on interest rates, the macro-prudential tools implemented by the regulators has had more impact on the economy over the last few years than a record-low official cash rate,” he concluded.

[Related: RBA pull cash rate trigger]

RBA urged to ‘leave fuel in the tank’
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Charbel Kadib

Charbel Kadib

Charbel Kadib is a journalist on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel held roles with public relations agency Fifty Acres, and the Department of Communications and the Arts. 

Charbel graduated from the University of Notre Dame Australia with a Bachelor of Arts (Politics & Journalism).

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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