RBA decision to cut rates just as expected

The Reserve Bank of Australia has decided to cut the cash rate to 2 per cent, the lowest interest rate most Australians will have ever seen.

He said “in a widely anticipated move, the RBA reduced the cash rate by 25 basis points to 2 percent. With core measures of inflation well within the Bank's target range of 2-3 percent, and trending downwards, the RBA has scope to use cuts in the cash rate to try and offset the current and expected continuing weakness in the real economy.”  

Glenn Otto is an Associate Professor of Economics at the UNSW Business School, and he adds “While an individual rate cut of 25 basis points is likely to have a relatively small stimulatory effect on aggregate activity, the Bank is in the fortunate position of having room for further reductions if necessary.”

He has looked for indicators in the RBA’s statement that the cut in rates will be short lived, and there may soon be a rate rise, in the light of a booming housing sector.

“The RBA Board does not seem to have allowed concerns about the positive effect of a lower cash rate on Sydney house prices to have out-weighed the need for further monetary stimulus,” he said.

He added that the forecast for the Australian economy is mixed, and the dollar has recently strengthened, although he comments “today’s rate cut will act to reduce short-term real interest rates, lower borrowing costs and help support a lower value for the Australian dollar.”

For further comment call Glenn Otto​ on 02 9385 3332.

Julian Lorkin: 02 9385 9887