Why the RBA didn't slash interest rates

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As widely expected, interest rates remained on hold today.

There wasn't a strong case for cutting them in the first Reserve Bank meeting of the new year, although some industry insiders did peg February as the month that we would see the cash rate slump to 0.50%.

I’ve seen some research and commentary from economists who believe we’ll have another interest rate cut within by the end of financial year in June. However, I’m not sure what the point of this will be, or what this would accomplish?

The economy is chugging along, but it’s not going exactly charging ahead.

Lagging employment and inflation figures, together with low wages growth, doesn't paint a picture of economic vibrancy. Access to credit remains tight, despite last year’s interest rate cuts, and issues surrounding planning reforms, taxes, fees and stamp duty are still impacting consumer confidence in the property market.

Last year’s rash of interest rate cuts had their desired impact on the housing market and saw Sydney and Melbourne rebound, but most economic metrics have been stagnant.

If the Reserve Bank sees enough motivation to lower rates again, there’s no guarantee that the banks will pass them on, and it could achieve little more than moving us closer to a 0% cash rate – at which point, the Reserve Bank’s levers are officially exhausted. The only place to go from there is quantitative easing.

Is cheaper credit really the answer from here? Time will tell.

Top Suburbs : torrensville , mortdale , narara , east victoria park , windale


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