All eyes are on the RBA

August 28, 2019

The Reserve Bank of Australia (#RBA) has cut official interest rates twice recently and is tipped to do so again in 2019. So what can we expect from the monthly board meeting next week September on 3rd?

A September rate cut is possible, although the Reserve Bank is more likely to leave rates unchanged, as it probably wants more time to gauge the impact of its cuts in June and July.

Even though the official cash rate is at a record-low 1.00%, the Reserve Bank made it clear, in its minutes from the August meeting, that board members were seriously considering a third rate cut in 2019.

“Having eased monetary policy at the previous two meetings [in June and July], the board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy,” the RBA said in its minutes.

“Members would consider a further easing of monetary policy if the accumulation of additional evidence suggested this was needed to support sustainable growth in the economy and the achievement of the inflation target over time.”

Translation: we’re open to giving the economy a bit of juice, and we’re open to doing it soon.

Follow topics on Soho today to get the latest insights and updates from industry professionals!

The RBA is going out of its way to discuss cutting rates

Wait – isn’t it possible that too much is being read into the Reserve Bank’s rather vague minutes?

Yes, it’s possible. But the language the Reserve Bank has used in recent months is very different to the language it used throughout 2018, when it believed the next move in rates would be up.

Back then, we were repeatedly told there was “no strong case for a near-term adjustment in monetary policy”. Now, though, the Reserve Bank has been going out of its way to float the idea of a rate cut. This language is strong by central bank standards – yet still ambiguous enough to leave the RBA with some wriggle room in case it ultimately decides not to cut.

Why is the RBA seriously considering a rate cut?

The Reserve Bank, in the August minutes, revealed why it’s thinking about giving the economy a little stimulus. The reasons included:

  • Unemployment remains stubbornly high (5.2%)
  • Inflation remains stubbornly low (1.6%)
  • Consumer spending has been weak
  • The economy is slowing in China (Australia’s biggest trading partner)
  • The US-China dispute is weakening the global economy

The Reserve Bank noted that the market consensus was for a third rate cut to occur by November and a fourth cut to occur sometime in 2020 – something to consider if you’re wondering whether now is a good time to fix your mortgage rates.

Why might the RBA decide to not cut rates?

That said, it’s not inconceivable that the Reserve Bank will surprise the market by leaving rates on hold in 2019 and 2020. Here are three reasons why:

  • Australia’s economy may not be perfect, but it’s still in reasonable shape
  • The public might be scared rather than reassured by yet another rate cut
  • The more stimulus the RBA applies now, the less it will have in reserve if a recession hits

Follow industry professionals on soho to get the latest updates and insights about interest rate cuts and mortgage rates.

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