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Further rate cuts ‘more likely than not’: RBA

— 1 minute read

The Reserve Bank has released the minutes from its June monetary policy meeting and has revealed that another cut may occur this year. 

The June meeting resulted in a rate cut of 25 basis points to 1.25 per cent, a historic low after two and a half years of holding steady. 

In the released minutes, it seems that the economists that have predicted further cuts will be proven right as the RBA said “it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”.

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Franklin Templeton’s director of fixed income, Andrew Canobi, said this signalled a preparedness to pursue more aggressive monetary policy by the RBA. 

“We take this to be more than one more cut and, consistent with the view we have held since 2018, we see 0.5 per cent as firmly in the sights,” he said. 

Mr Canobi said the RBA made it clear that the labour market had to improve, but it was unlikely to do so in the near future. 

“Unemployment and forward-looking indicators suggest that, far from further improvement, a period of some weakness lies ahead,” said Mr Canobi. 

Daintree Capital’s director and portfolio manager of interest rates and currency, Justin Tyler, agreed and said the latest economic data from the ABS showed that another cut was likely to occur

“Unemployment is the most important data for the RBA, and we expect the RBA to cut rates again in the face of a labour market that is unlikely to experience any sustained decrease in the unemployment rate,” said Mr Tyler. 

Shane Oliver, chief economist at AMP Capital, also predicted that the RBA would continue to cut rates but not as drastically as Europe or Japan. 

“Our view remains that the RBA will cut the cash rate to 0.5 per cent beyond which it will probably conclude it’s of little benefit,” he said. 

Mr Oliver also said that the RBA may look into other policies such as quantitative easing to help boost the economy. 

“This basically involves seeking to boost the economy by injecting more cash into the economy using printed money… But bear in mind Australia is a long way from needing to do this,” he said.

It seems there is appetite among the RBA to use more tools available to them and that, where appropriate, they would utilise it. 

“Lower interest rates were not the only policy option available to assist in lowering the rate of unemployment, consistent with the medium-term inflation target,” said the RBA.

In the minutes, it seems that the RBA members maintained a reasonable outlook for the Australian economy but were watching the unemployment rate closely.

The members decided that there was spare capacity in the labour market due to increased flexibility on the supply side together with subdued growths in wages and inflation. 

“These data suggested that the Australian economy could sustain a lower rate of unemployment than previously estimated, while achieving inflation consistent with the target,” said the RBA. 

That target range is between 2 and 3 per cent, but underlying inflation has been below that range for over three years and is likely to continue, noted the RBA. 

The eventual decision to lower the cash rate was made to assist in “reducing spare capacity in the labour market, providing more Australians with jobs and greater confidence that inflation will return to be comfortably within the medium-term target range in the period ahead”.

 

Further rate cuts ‘more likely than not’: RBA
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Eliot Hastie

Eliot Hastie

Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms. 

Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.

Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).

You can email him on: [email protected]

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