Will the RBA change the cash rate in July?

^{Photo by Harry Cunningham on Unsplash}

Australia's central bank meets on Tuesday to discuss the possibility of a change to the cash rate.

The Reserve Bank of Australia (RBA) has held the cash rate at 0.25% for three consecutive months before today, after cutting the rate twice in March and implementing a quantitative easing (QE) program. 

Any change to the cash rate for July is looking incredibly unlikely. 

Check out the decision here. 

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NAB economist Ray Attrill said recent remarks from the RBA and current economic and health conditions meant a cash rate hold was all but confirmed. 

"The RBA this afternoon can confidently (be) expected to be on hold as it continues to assess the outlook, where even in its best-case upside scenario, full economic recovery will take years," Mr Attrill said.

"Further, Governor Lowe has emphasised that the economic recovery depends on health outcomes and how quickly confidence is restored, where the recent COVID-19 outbreaks in Victoria have presented an additional downside risk." 

The RBA has been defiant that the cash rate is at its effective floor and repeatedly stated it does not have the appetite for negative interest rates in Australia.

Instead, as a result of the central bank's QE measures, the cash rate has been pushed lower and has hovered around the 13-14 basis point mark. 

At an address to The Economic Society Australia last week, RBA Deputy Governor Guy Debelle said it was unlikely the cash rate would be increased before the end of 2021. 

"The market expectation is that the cash rate will remain around its current level of 13–14 basis points for at least the next year," Mr Debelle said.

"This is consistent with the Board's guidance that the cash rate target will not be raised until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band.

"Given the outlook for inflation and the labour market, this is likely to be some years away." 

July 23 looms large 

Although no surprises are expected from the RBA today, their announcement may provide valuable insight into the fiscal cliff Australia is facing at the end of September. 

Treasurer Josh Frydenberg will hand down a mini-budget on July 23, outlining the fate of the boosted JobSeeker payments and the JobKeeper scheme. 

RBA Governor Phillip Lowe has emphasised his concern that economic recovery will be stymied if the support measures are withdrawn too early. 

"I think it's very important that we don't withdraw the fiscal stimulus too early," Dr Lowe said at the end of May.

"Ending the fiscal support could be damaging, but if the economy bounces back then tailoring the fiscal support might be the right thing to do."

Around 3.3 million workers are currently supported by JobKeeper's $1,500 a fortnight payment, and a hard end to the scheme could see a huge spike in unemployment. 

The unemployment rate currently sits at 7.1%, with more than 800,000 people losing their jobs since the start of COVID-19. 

Unwilling to consider negative interest rates, the RBA is essentially all out of tools to manipulate monetary policy, and is now looking to the Government to provide support to the economy through fiscal measures. 

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