RBA refuses to shut the door on more rate cut stimulus

The RBA has left the door open to further rate cuts today after many economists had put them down for a reasonable spell on the sidelines after this week’s rate cut. 

In their May statement the Reserve Bank is concerned about slowing Chinese growth and continued weak business investment and sentiment here in Australia. 

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time,” the RBA said. 

Economic growth is now expected to be between 2.5 and 3.5 per cent in the year to June 2016, which is a quarter of a percentage point weaker than previous forecasts. 

“GDP growth is forecast to remain below trend for a bit longer than had been anticipated in the February statement,” the RBA said. 

The Reserve Bank said business investment and public spending remained sluggish with ongoing pain from falling commodity prices and mining investment. 

The comments from today’s statement from the RBA leave open the possibility of more rate cuts to stimulate the economy despite the risks of overheating the one sector in the economy that is performing well – property. 

Most analysts think it’s unlikely there’ll be more rate cuts in the months ahead because while the economy is sluggish in some areas, there are other signs of recovery.

According to the RBA’s statement today, the forecast for Australian dwelling investment was positive and up because of the low interest rates and strong population growth. 

“The latest data from the labour force survey suggest that recent trends in the labour market have been a bit better than earlier indicated,” the RBA said. 

The RBA also said they expect inflation to remain well contained over coming months and hope for further depreciation in the Australian dollar.


News & Resources