Australia’s lowest ever Reserve Bank cash rate – 1.5% – is about to be consigned to history.
On Tuesday Governor Philip Lowe made it clear he plans to cut it in two weeks’ time. The money market cash rate (from which all other rates derive) will then fall to 1.25%.
After that, if betting in the market is right, he will cut the cash rate to just 1% by Christmas.
inflation was likely to remain low relative to the target, and that a decrease in the cash rate would likely be appropriate.
A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at its meeting in two weeks’ time the board would consider the case for lower interest rates.
The bank is forecasting a tick up in economic growth from the present 2.3% to 2.75% by the end of the year and a fairly steady unemployment rate.
But here’s the thing. He was keen to emphasise that those forecasts only applied if he cut rates twice this year – that’s twice, before the end of the year.
Reserve Bank cash rate since 1990
Authors: Warren Hogan, Industry Professor, University of Technology Sydney