RBA’s reluctance won’t stop another rate cut

Adam Smith 18 May 2016

RBA cash rate march 2016The Reserve Bank was reluctant to cut the official cash rate at its last meeting, but economists are still tipping another cut before the year’s end.

Minutes from the Reserve Bank’s May meeting indicate the RBA board’s decision to trim the official cash rate to 1.75% may have been a close call. The minutes show the board considered waiting for more data before deciding on a rate cut.

“Members discussed the merits of adjusting policy at this meeting or awaiting further information before acting. On balance, members were persuaded that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,” the minutes said.

The board noted that unemployment remained stable and GDP growth had been “a bit stronger than expected”, but suggested that low inflation tipped the board’s balance toward a rate cut.

In spite of the apparent reluctance to deal a May rate cut, economists are still predicting the official cash rate has yet to reach the bottom of the cycle. Westpac chief economist Bill Evans has forecast another cut, but has said the Bank will wait for new inflation data.

“With reasonable prospects for ongoing above-trend growth we expect that the Bank will be satisfied that its next rate cut in August will provide further support for its current forecast that underlying inflation will be back near the bottom of the target zone in 2017,” Evans said.

What are the chances of two RBA cuts in a row?

Commonwealth Bank economist Michael Blythe believes the RBA will cut the official cash rate twice before the end of the year, but has claimed the rate cuts are unnecessary.

"The real economy I don't think really needs any extra assistance right now. I think what we're really saying here is, in the absence of anything else coming along to do some of the heavy lifting for policy, then what's left it's all down to interest rates,” Blythe said, according to the ABC.

More great ideas from finder.com.au

Get a life insurance quote
Get a life insurance quote

Find out what it costs to protect yourself and your family

More info...
Refinancing home loans
Refinancing home loans

Choose from offers with rates as low as 3.39% p.a.

More info...
Google Pixel
Google Pixel

Compare plans for Google's flagship Android phone

More info...
Christmas ideas
Christmas ideas

Visit our Christmas homepage for gift ideas, markets, travel & deals

More info...

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question
feedback