RBA entertains possibility of rate cut

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The Reserve Bank of Australia (RBA) said in the minutes of its April monetary policy meeting that a decrease in interest rate would likely be appropriate if inflation does not increase and unemployment tracks upward.

Economists who have been forecasting a rate cut read the statement as a suggestion for a higher probability of slashes in the interest rate.

"[The minutes] provided the clearest signal yet that the Bank would be prepared to cut the cash rate,” Westpac Chief Economist Bill Evans told The Sydney Morning Herald. Evans has beend predicting that rates would fall in both August and November.

JP Morgan Securities Australia Chief Economist Sally Auld also said the minutes backed her forecast of a half a percentage point drop in rates this year. The change is predicted to start in July.

A bigger or earlier drop was possible considering the recent discussion of the central bank’s board, according to Auld.

“The effect on the economy of lower interest rates could be expected to be smaller than in the past,” the RBA said in a statement. “Nevertheless, a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure.”

The country’s unemployment rate slid to an eight-year low of 4.9% in February— its lowest in nearly eight years.

RBA has kept the cash rate unchanged at 1.50% since August 2016.

 

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