RBA Signals More Rate Reductions

Posted on 30/06/2019  
RBA Signals More Rate Reductions

The Reserve Bank has signaled further rate cuts are imminent as it looks to stimulate the economy and boost employment. It says employment is unlikely to grow faster than population growth - meaning wages are unlikely to rise and the jobless rate will remain steady.

The minutes of the June board meeting show the RBA decided to cut rates to a record low of 1.25% after weak inflation data and the low rate of wages growth.

"Given the amount of spare capacity in the labour market and the economy more broadly, members agreed it was more likely than not that a further easing in monetary policy would be appropriate," the minutes said.

The RBA urged the Federal Government to do more, saying lower interest rates are not the only policy option available to lower unemployment. It said tax cuts yet to be passed by Parliament, worth $1,080 for most workers and scheduled to begin in July, would boost household disposable income and support household consumption in the second half of 2019.

Australia's biggest lender has predicted the official interest rate will fall below 1% by November. The Commonwealth Bank jumped on RBA signals that more interest rate reductions are imminent, forecasting rates will hit a record low of 0.75% before Christmas.

Earlier, both Westpac and NAB have forecast three reductions in the official cash rate this year, beginning with the 0.25 cut announced on 4 June.

The market has priced in a 100% chance of a second drop to 1% by August, from the current 1.25%.

In a sign households are increasingly concerned about the economy, the weekly Westpac-Roy Morgan measure of consumer confidence fell for the third consecutive week after spiking following the Coalition's re-election.

ANZ's head economist, David Plank, says the prediction of further rate cuts is an "unusually strong signal" from the Reserve Bank and raised the possibility it could "be doing something non-conventional very soon, within a matter of months, unless there is a rapid turn".

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