News

RBA holds its nerve and keeps rates unchanged ahead of federal election

08 May 2019

This month’s eagerly awaited RBA meeting has ended with the official cash rate remaining unchanged for a record 34thconsecutive month.

Plenty of pundits were expecting the central bank to cut interest rates despite the nation being just days away from a federal election after lower than hoped inflation figures came in.

While the RBA refrained from a cut this month, economists are now saying the chances of a cut later in the year has now increased even further.

The most likely scenario appears to be two rate cuts before the end of 2019, with both inflation and economic growth continuing to show weakness and the RBA says unemployment will probably need to fall to start driving up inflation to the target rate.

"[The RBA board] recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target," RBA governor Philip Lowe noted in his post-meeting statement.

"Given this assessment, the board will be paying close attention to developments in the labour market at its upcoming meetings."

Mr Lowe said however, that the Reserve Bank doesn’t expect the unemployment rate to drop sharply any time soon.

"The unemployment rate has been broadly steady at around 5 per cent over this time and is expected to remain around this level over the next year or so, before declining a little to 4.75 per cent in 2021," he wrote in the RBA statement yesterday.

Domain economist Trent Wiltshire told Nine News he thinks the RBA will cut rates twice this year down to 1 per cent.

“The RBA has been reluctant to cut rates despite a slowing economy and weaker than expected inflation due to strong jobs growth and low unemployment," he said.

"But with such low inflation, the RBA has changed to an ‘easing bias’ and will cut rates in the next few months."

CoreLogic head of research Tim Lawless also spoke to Nine News and discussed the implications of the RBA’s possible rate cut moves on the housing market.

“If the cash rate does move lower later this year, a reduction in mortgage rates would provide some support for housing demand, however we may not see quite as much stimulus for housing market conditions that we have seen after previous rate cuts,” he said.

“Generally, housing sentiment remains low and borrower mortgage serviceability is still assessed based on mortgage rates of at least seven per cent.”

“Households who already have a mortgage, or prospective borrowers who are able to satisfy lender credit policies will be the winners if interest rates do fall later this year.”

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