News

The Reserve Bank has decided against a third rate cut in a row

09 August 2019

The Reserve Bank has decided against cutting rates for the third month in a row and has left them at their record-low of 1 per cent.

The move didn’t surprise many economists who saw a third cut in a row as unlikely, but they say another rate cut next month is much more likely.

RBA governor Philip Lowe said unemployment was not falling as quickly as he hoped and it was contributing to low income growth.

“Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply,” he said.

“Caps on wages growth are also affecting public-sector pay outcomes across the country.”

“It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target,” Dr Lowe said in a statement.

It’s a statement that NAB’s Kieran Davies says indicates the RBA will look to cut rates again at some stage this year.

“An earlier cut would depend on labour market developments, the boost to consumer spending from the Government’s income tax cuts that commenced on 1 July, and the state of the world economy,” he told the ABC.

“We also expect additional fiscal stimulus by late this year, although so far the Government is sticking to its political objective of returning the budget to surplus.”

“Depending on the effectiveness of lower rates and fiscal stimulus, additional monetary measures are possible next year,” Mr Davies said.

CoreLogic’s head of research Tim Lawless said the breather taken by the RBA this month would allow it to step back and take stock of the effects of the two previous cuts prior to this month.

Mr Lawless told News.com the housing market was benefitting from the lower mortgage rates.

“The improvement in housing market trends can’t be attributed entirely to lower interest rates,” he said.

“There has also been the added stimulus of looser home loan serviceability assessments, following APRA’s decision to scrap the 7 per cent interest rate floor used to assess a borrower’s ability to repay a mortgage, as well as the confidence injection post federal election and tax cuts for low income earners.”

“With mortgage rates set to remain low for an extended period of time, as flagged by RBA Governor Lowe in a speech last month, and potentially move even lower later this year, we are expecting to see the housing market move into a gradual recovery, however with credit policies remaining tight and economic uncertainty still elevated, we aren’t expecting a material acceleration in housing activity or housing values,” Mr Lawless said.

 

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