The Reserve Bank of Australia has, as expected, kept the official cash rate on hold at 1.50% again.
This month’s decision by the RBA board marks the 28th ‘hold’ decision in a row.
Financial markets assigned just a 2% chance of 25 basis point rate cut prior to the decision, and all 26 economists polled by Bloomberg said the cash rate would remain unchanged.
In his official statement today, RBA Governor Philip Lowe outlined several key reasons for keeping the cash rate constant again:
- Trade tensions remain a source of uncertainty, particularly in China
- Globally, headline inflation rates have moved lower following the earlier decline in oil prices
- Growth in the Australian economy slowed over the second half of 2018
- Household consumption is weak in the context of weak household income growth and falling house prices
- Credit conditions for some borrowers have tightened a little further over the past year or so
- Headline inflation is expected to decline in the near term because of lower petrol prices
Governor Lowe said given this information (and more): “The Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
Lowe also said the RBA expects the Australian economy to grow by “around 3% this year”, with increased employment and spending on public infrastructure singled out as reasons why.
Changes to finally arrive soon?
Every month it seems there are more and more economists and commentators who predict a rate change in the near future, and last month Westpac became the first major bank to predict a rate cut for 2019.
In fact, Westpac Chief Economist Bill Evans actually predicted two of them – both 25 basis points in August and November 2019.
If his prediction proves correct, this would leave the already record-low cash rate at an unprecedented 1%.
Mr Evans said Westpac’s revised growth, inflation and unemployment forecasts now make a “convincing case” for lower rates.
Westpac had cut its GDP growth forecast for this year and next from 2.6% to 2.2%.
More recently, financial services firm Nomura has mirrored Westpac’s view that there will be not one but two rate cits in 2019.
Nomura however predicts these cuts will occur in July and August, not August and November.
A 50 basis point reduction in the cash rate by the year’s end could be mixed news for consumers if banks and lenders pass it on.
Home loan customers would pay less interest – which is good news for them.
But it’s bad news for those who rely on interest earnings for income, like many retirees.
Savings and term deposit rates are already barely sitting above the rate of inflation.
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Picture source: RBA