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RBA keeps cash rate on hold at 0.25%

Jessica Yun
·4-min read
(Source: Getty)
(Source: Getty)

The Reserve Bank of Australia has decided to maintain the official interest rate of 0.25 per cent for another month.

Following its August meeting held this afternoon, the RBA board announced it was keeping the cash rate on hold at the historic low.

“The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. As difficult as this is, the downturn is not as severe as earlier expected and a recovery is now underway in most of Australia,” RBA governor Philip Lowe said in a statement.

“This recovery is, however, likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy.”

Lowe also flagged that further stimulus would be needed in order to prop up the economy.

“The Australian Government's recent announcement that various income support measures will be extended is a welcome development and will support aggregate demand,” he said.

“It is likely that fiscal and monetary stimulus will be required for some time given the outlook for the economy and the labour market.”

No surprises here

The decision comes as no surprise to all 37 economists surveyed by Finder, who correctly predicted ahead of the meeting that the rate would be kept on hold.

“The RBA has indicated that they will not change interest rates in the foreseeable future” said property expert Michael Yardney.

“They are not going to move to negative interest rates, and they will not raise interest rates until [the] unemployment rate is 4.5 per cent. That won't happen for a number of years.”

AMP Capital chief economist Shane Oliver said the reserve bank is in ‘watch and wait’ mode.

“It could still ease monetary policy a bit further later this year, but the Bank does not see any value in going negative on rates; cutting to say 0.1 per cent is hardly worth the effort (although it's possible), which leaves more quantitative easing as the main tool for any further easing.”

Any chance of a rate hike is “at least” three years away, he added.

Echoing Oliver’s sentiments, independent economist and former ANZ chief economist Saul Eslake said: “I think it's quite possible that the RBA won't raise the cash rate until 2023.”

Several other economists indicated the RBA’s attention was now on further stimulus from the government.

“With little further room to move and impact to be gained, the RBA will want to keep the last traditional monetary policy action in reserve for any further major deterioration,” said Griffith University’s Mark Brimble.

Prior to today’s decision, BetaShares chief economist David Bassanese said there was a growing risk of the Board lowering rates to 0.1 per cent.

“Although the RBA’s policy kitbag appears largely empty, it has promised it can do more if need be. Indeed, a possible surprise cut in the official cash rate to 0.1% this week can’t be ruled out, given it was a possibility raised by Governor Lowe in a recent speech,” he said.

“Melbourne’s lurch from bad to worse last week could be the catalyst! Even if the RBA does not cut this week, I now see such a move as increasingly likely by November.”

The Australian National University’s RBA’s ‘shadow board’ said there was a very slim chance of another rate cut.

"The Shadow Board attaches a 6 per cent probability that a final rate cut, to the lower bound of 0 per cent is appropriate," the board said.

The national economy’s outlook has worsened amid Victoria’s strict new lockdown measures that economists predict will see the recession extended until the end of the year.

The state’s lockdown will also see a quarter of a million more Victorians out of a job.

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