News

RBA leaves rates unchanged on Melbourne Cup Day

05 November 2019

The Reserve Bank has left rates unchanged on Melbourne Cup Day for 2019 as most economists expected.

There was a small spike in inflation last week and it virtually put an end to the prospect of another cut this month while the RBA waits to see if it continues to rise to its target of 2-3 per cent.

While there was a slight uptick in inflation, September’s retail spending figures were again disappointing and it suggests the record low interest rates and government tax cuts haven’t yet got the economy going as hoped.

KPMG economist Brendan Rynne says the economy suggests that more rate cuts are possible.

“When I look at the three key factors – underlying inflation, unemployment and exchange rates – there are more reasons to drop rates than there are to keeping them on hold,” he said.

“But time is still on our side at the moment, and that’s a good enough reason to sit tight and see where some global uncertainties start to fall.”

Economists are largely leaning towards more cuts to the official cash rate by mid-2020.

RBA governor Philip Lowe said in his statement the global economy remained reasonable.

“The US-China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty,” he said.

“At the same time, in most advanced economies, unemployment rates are low and wages growth has picked up, although inflation remains low.”

“Expectations of further monetary easing have generally been scaled back over the past month and financial market sentiment has improved a little.”

CoreLogic’s Tim Lawless wasn’t surprised by today’s Melbourne Cup Day decision.

“Considering the RBA is running out of conventional monetary policy ammunition, the decision to hold the cash rate at the historic low of 0.75 per cent was widely anticipated,” he told News.com.

“The decision to keep rates on hold was supported by the latest labour market and inflation readings, which saw the national unemployment rate nudge lower, while annual headline inflation edged slightly higher.”

“Additionally, a rebound in housing values and a rise in buyer activity will hopefully begin to flow through to a gradual improvement in household wealth and spending.”

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