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RBA reveals cash rate decision

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rba   ta
Charbel Kadib 3 minute read

The central bank has announced its cash rate decision, following its monthly monetary policy board meeting.  

The Reserve Bank of Australia (RBA) has held the official cash rate at 1.25 per cent, despite expectations of a second consecutive cut following its adjustment in June.

In minutes released from last month’s board meeting, the central bank acknowledged that further cuts to the cash rate were “more likely than not”, with governor Philip Lowe also conceding that the market was not “making any inroads into the economy's spare capacity”.

The RBA’s unusually strong signal to the market prompted observers to predict back-to-back rate cuts in July and August, as part of an aggressive strategy to stimulate the labour market and boost GDP growth.   

ANZ Research’s head of economics, David Plank, had said: “[Clearly] there is a very real chance the cash rate is cut in both July and August given the RBA’s assessment that ‘we are not making any inroads into the economy’s spare capacity’.”

AMP Capital’s chief economist, Shane Oliver, who also predicted cuts in both July and August, stated that the RBA could lower rates by a cumulative 2 per cent.

“We remain of the view the RBA will [cut] in July/August, November and February, taking the cash rate to 0.5 per cent,” he predicted.

However, according to CoreLogic’s research analyst, Cameron Kusher, the RBA may be employing a patient approach to monetary policy easing.  

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“There remains a strong likelihood that interest rates will be reduced again over the coming months; however, it seems the RBA felt that the decision need not be made in a rush considering the reduction in rates in June,” Mr Kusher said.  

Governor Lowe has also noted the RBA’s reluctance to exhaust its monetary policy tool by dropping the cash rate to a “dangerous low”.

Expected rate cuts from the Federal Reserve in the United States and from the European Central Bank have been flagged as a potential catalyst for a revision to the RBA’s monetary policy strategy.

Analysts have observed that rate reductions from foreign central banks may undermine the RBA’s hopes for a lower Australian dollar to improve the domestic labour market’s competitiveness in the global arena, prompting it to ease further.

In a panel discussion hosted by the ANU Crawford Australia Leadership Forum, governor Lowe acknowledged the challenges but said the central bank would not look to out-cut its foreign counterparts.

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“If everyone’s easing, the effect that we get from exchange rate depreciation [isn’t there], so we don’t get the same stimulus that you would normally expect from monetary easing,” he said.

“It may be possible if you ease more than others, but that’s quite a dangerous path to go down.”

He added: “There are limits on what further monetary policy can achieve.”

Mr Lowe renewed his call for alternative policy measures to stimulate the domestic economy.  

“In my mind, that means we need to focus on fiscal policy and structural reforms,” he said.

Nonetheless, the market is expecting further cuts to the cash rate in the coming months, with 96 per cent of brokers surveyed by mortgage marketplace HashChing expecting at least one more cut in 2019.

[Related: Brokers expect at least one more RBA cut]

RBA reveals cash rate decision
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Charbel Kadib

Charbel Kadib

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

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

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

 

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