RBA hints at more interest rate cuts

By Kay Rivera | 20 Jun 2019

The Reserve Bank of Australia (RBA) is likely to cut interest rates again to increase hiring, as well as household’s confidence in inflation hitting the target.

The Reserve Bank board members said during their June 4 policy meeting that more declines in the cash rate are “more likely than not” to come.

Minutes from the RBA showed members believe that more cuts would probably be required in addition to June's 0.25-percentage-point slash as the central bank tries to fuel sluggish economic growth.

“Given the amount of spare capacity in the labour market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead,” policy makers said in a statement. “They also recognized, however, that lower interest rates were not the only policy option available to assist in lowering the rate of unemployment.”

Economists, meanwhile, said the minutes confirmed predictions that the RBA will cut the cash rate again in July or August. JPMorgan's Tom Kennedy forecast another reduction to leave the cash rate at 0.75% by the end of 2019 before dropping to 0.5% next year.

"We doubt 50 basis points of easing will be sufficient to resolve the issues facing the Australian economy," Kennedy said.

The futures also implied a 50% chance of a July cut, with a 0.25-percentage-point cut almost fully priced in by August.

UBS is still anticipating cuts in August and February but said that situation might change after Jonathan Kearns, RBA’s head of financial stability, announced on Tuesday that mortgage arrears are rising.

"Comments today that 'arrears rates should not rise to levels that pose a risk to the financial system', 'so long as unemployment remains low', suggest that if unemployment were to rise more than we currently expect, it would raise the risk of more and earlier easing," UBS economists said in a  statement.

However, RBA Governor Philip Lowe, in a speech following the rate cut two weeks ago, warned against too much dependence on monetary policy, noting that infrastructure investment and structural reforms could also help speed economic growth.


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