WITH THE CENTRAL BANK’S TARGETS FOR BOTH INFLATION AND UNEMPLOYMENT MISSING THE MARK THE BIAS REMAINS TOWARDS LOWER RATES
The RBA has cut the overnight cast rate by another 25 basis point, the third such move this year, with analysts saying another two cuts are on their way by the first quarter of 2020
1 October 2019 | Marcus Reubenstein
The Reserve Bank of Australia made the widely expected decision to drop its overnight cash rate to 0.75 per cent — the third time it has wiped 25 basis points off since June.
In a clear signal of more cuts to come, Reserve Bank governor Philip Low’s board meeting statement indicated, “Interest rates are very low around the world and further monetary easing is widely expected, as central banks respond to the persistent downside risks to the global economy and subdued inflation.
“The board took the decision to lower interest rates further today to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target. The economy still has spare capacity and lower interest rates will help make inroads into that.”
One leading commentator, who’s consistently picked the RBA’s interest rate moves, is AMP Capital Chief Economist Shane Oliver. Following the latest announcement he says, “The rate and tax cuts to date will help the economy but its doubtful they will be enough to get growth back up towards 3% and unemployment on a trajectory towards 4% or less which will be necessary to get wages growth and inflation up.
“As a consequence, we continue to expect the RBA to cut by another 0.25% in November and again in February to just 0.25%.”
Dr Oliver says he believes the Morrison government will now seriously look at implementing budget stimulus measures in both December, when the government conducts its mid-year budget review (MYEFO) and the next Federal Budget which will be handed down in May 2020. </p>
While he says home lending rates are now poised to hit their lowest levels since the middle of the last century he cautioned those with cash to switch out of bank deposits if they are looking to generate income from their invested capital.