The Reserve Bank of Australia (RBA) has suggested future rate cuts would “get more traction” as the Australian economy begins to reopen.
The RBA took the official interest rate to a record low of 0.25 per cent in March, but Governor Philip Lowe said there is now more to be gained from cutting rates further than there was during the height of Australia’s battle with the pandemic.
Also read: Will interest rates go up in a recession?
“When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing,” he told the Citi Australia and New Zealand Investment Conference in Sydney on Thursday.
“The solutions to the problems the country faced lay elsewhere. As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.”
Continuing, he said the RBA has considered the impact of rate cuts on financial stability and said these metrics have also changed more recently.
“To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. In so doing, it can reduce financial stability risks,” he said.
However, he noted, further rate cuts will dent interest rates for those who rely on interest income.
While he was cagey on when or if the central bank would next cut rates, Lowe said Australia won’t see an increase until 2023 or later.
"On our current outlook for the economy – which we will update in early November – this is still some years away," Lowe said.
"So we do not expect to be increasing the cash rate for at least three years."
November rate cut predicted
The RBA will decide on the rate cut at its next monthly board meeting on Tuesday 2 November, with economists predicting a cut verdict.
Several economists predict the central bank will move to lower rates in November, after the bank hinted at it before the October meeting, which fell on the same day as the Federal Budget.
"The RBA appears ready to add further monetary support by cutting the Official Cash Rate to 0.1 per cent, although they will probably wait until [Melbourne] Cup day,” Bendigo and Adelaide Bank’s David Robertson told the Finder RBA interest rate survey.
IFM Investors’ Alex Joiner and Macquarie University’s Geoffrey Kingston both agreed, noting the RBA has already signalled it’s considering easing the cash rate further.
Westpac chief economist Bill Evans also predicts a November rate cut, claiming that that date gives the Government enough time to “sell” the Federal Budget.
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