Powered by MOMENTUM MEDIA

RBA decision to hold anticipated by industry

— 1 minute read

The RBA has held the official cash rate at 1.0 per cent which was the prediction of most economists due to the lack of time between cuts.

The current cash rate is still at a historic low with the recent hold welcomed by economists but many are predicting a further cut before the end of the year. 

The hold was welcomed by the industry with over 90 per cent of Finder.com.au’s experts predicting the hold.

Advertisement
Advertisement

“For now the RBA is in wait and see mode – basically waiting to see what sort of boost to growth the rate cuts of June and July and the Federal Government’s tax cuts for low and middle income earners provide.  Baring a shock to the economy this is likely to remain the case for a few months,” said AMP’s chief economist Shane Oliver. 

The industry expected that the RBA would hold as it waited to see if the cuts had any impact with a forecast that the next cut will occur in October or November. 

The hold by the RBA allows the central bank to assess whether its two cuts have had any impact, but it may have to wait until the ABS June lending data is released on Wednesday to reveal whether the major housing markets had a stimulating impact. 

RBA’s governor Philip Lowe said that the outlook for the global economy was reasonable but global events had tilted it downside. 

“The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected,” he said. 

Mr Lowe said that the RBA still expected the economy to grow but there had been little inroad into the spare capacity in the labour market and housing market was still sluggish. 

“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 toward the inflation target,” said Mr Lowe.

Mr Oliver said that it was clear the RBA still had an easing bias and pressure would remain on the central bank in the short term. 

"Help from more fiscal stimulus and structural reforms is needed but this will take time to come through and impact the economy so the pressure remains on the RBA in the short term."

Mortgage aggregator Finsure Group’s managing director John Kolenda said the move was the right one as the RBA needed to save future reductions for further deterioration. 

“Interest rates aren’t the only lever to stimulate the economy and the RBA for the time being can apply the handbrake on rates and see what impact income tax cuts, infrastructure spending and the stabilisation of house prices has on consumer confidence,” he said. 

“The central bank needs to leave some fuel in the tank for potentially more headwinds, although it’s encouraging to see some positive signs in the economy coming through.”

Mortgage Choice’s chief executive Susan Mitchell said the decision by the bank to hold was prudent and there was no economic incentive to reduce the rate. 

“A third cut so soon after two consecutive cuts in June and July would not have given policy makers enough time to see if the cuts had any marked effect on the economy,” said Ms Mitchell. 

Even ex-prime minister John Howard expressed that the Reserve Bank needed to have room to move and that is what had helped Australia ride out the GFC. 

"A number of reasons why we came through the GFC so well is that our interest rates were higher when we entered the GFC and the central bank had room to move," he said. 

Mr Howard made the comments at a mining industry conference in Western Australia and even expressed that the RBA had already cut too much. 

"I think we’ve cut interest rates probably far enough already, perhaps too far. But I don’t think my advice will be taken.”

 

RBA decision to hold anticipated by industry
investordaily image
ID logo
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]

related articles

promoted stories

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.