Is another rate cut likely?

By Gerv Tacadena | 09 Oct 2020

With the economy still playing catch up amid the COVID-19 outbreak, an expert believes the Reserve Bank of Australia (RBA) might move the cash-rate target lower next month.

Despite the expectations that the cash rate will be reduced further this month, the RBA decided to hold it at its current historic low of 0.25%.

While the central bank believes that a global economic recovery is underway, it remains to be seen whether its targets are achievable in the near to medium term, said Shane Oliver, chief economist at AMP Capital.

"Our base case remains that the RBA will cut the cash rate, the term funding facility rate and the three-year bond yield target to 0.1% and will now do this at its November meeting after it has updated its forecasts which will likely show that its employment and inflation objectives are still not going to be met over the next two years at least," he said.

In its statement, the RBA said it remains committed to do what it can to support jobs, incomes and businesses in Australia.

"The RBA Board will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2% to 3% target band," the RBA statement said.

Oliver said the RBA's statement indicates its "easing bias." He said there was a change in the RBA's tone, as it previously stated that the 0.25% rate is already the "effective lower bound". In its monetary policy decisions prior to this month, the RBA said any further reductions in cash-rate target will not spur any economic merit.

"We also see it adopting a more traditional quantitative easing program extending bond buying beyond the three-year bond," he said.

Tim Lawless, head of research at CoreLogic, said the low cash-rate setting is boosting activity in the housing market, particularly on the buyers' side.

"Such a low setting for interest rates, along with policies aimed at ensuring liquidity across financial markets, has been a key factor in supporting housing market activity and insulating home values," he said.

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