The RBA has acknowledged that there’s not much juice left in rate cuts, but forecasts an improvement in economic conditions.
The RBA’s Statement on Monetary Policy for November discussed the recent rate hold and hinted at the prospect of unconventional monetary policy, with the board acknowledging that there wasn’t much room for rates to go lower.
“In discussing the policy decision in October, the board was mindful that rates were already very low and that each further cut brings closer the point at which other policy options might come into play,” the report reads.
“It also took into account the possibility that further easing could unintentionally convey an overly negative view of the economic outlook, or that the usual channels of policy transmission might be less effective at low interest rates.”
Both of these factors played into the board’s ultimate decision to embrace a “wait and see” approach and hold rates at 0.75 per cent as they ascertain the impacts that the historically low rates have had on the economy.
However, the RBA also forecast a gradual improvement in economic growth, supported by low interest rates, tax cuts, spending on infrastructure, and an upswing in housing markets.
While growth in labour income has also increased, this has been offset by weak farm incomes resulting from the drought, as well as a downturn in housing-related business income and ongoing strong growth in tax payments.
Inflation is expected to increase gradually to close to 2 per cent over 2020 and 2021.
The report pinned some of the blame for Australia’s weak economy on continuing global uncertainty but noted that the outlook was improving, with a break in the ongoing US-China trade war and the possibility of a no-deal Brexit temporarily averted.
However, the volatility of both of these events means that it is impossible to ascertain whether any improvements will be long term.
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