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RBA rate cut moves hinge on inflation figures

31 July 2019

Economists say it’s well and truly possible that the Reserve Bank could cut interest rates twice more in the next year.

Furthermore, while they say another rate cut next week is unlikely – it would be the third cut in as many months – it could become a live option if the latest Australian Bureau of Statistics report doesn’t return favourable inflation figures.

The Reserve Bank governor Philip Lowe has said the central bank is willing to cut rates again if required.

IFM Investors chief economist Alex Joiner spoke to the Australian Financial Review.

“If you were to see inflation disappoint materially, each meeting in the second half of the year becomes live,” he said.

“Personally I think the pressure will be on the RBA to cut later this year.”

“The indicators for the labour market have all softened. What you’d expect to happen is the pace of employment growth to slow and in that environment of stronger participation rate and strong population growth, the unemployment rate will move higher.”

The Australian unemployment rate has remained at 5.2 per cent for the last two months and KPMG chief economist Brendan Rynne said he thinks the RBA will also hold steady this month.

“You’ve had two back-to-back interest rate cuts and even with some of the more high-frequency data, you’ve not been able to see what the effect is,” he told AFR.

“You’re only just starting to see people getting their additional tax refunds so I think it’s prudent for the board to sit on their hands for the next meeting.”

Despite what the RBA does next week in its monthly meeting, the likelihood of a more aggressive approach to cutting interest rates has certainly appeared to have increased in the last week.

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