Posted in:

RBA leaves cash rate unchanged at 1.5% but future rate cut likely

rba interest rates

Although the RBA has left the cash rate unchanged since August 2016, there is a growing likelihood that the cash rate will move lower later this year.

While labour markets remain strong, low unemployment and above average jobs growth is generally confined to New South Wales and Victoria.

Concerns around slowing consumption as the wealth effect reverses, causing households to pull back on spending and revert to saving were likely a central theme of the RBA’s board meeting deliberations.

The ongoing falls in dwelling values have the potential to weigh down consumer attitudes towards spending and cause a sharper than anticipated fall in residential construction activity.

The latest data from CoreLogic shows the pace of decline has eased off somewhat over the past couple of months, but the geographic scope of weak housing market conditions has broadened.

With values trending lower across most regions of Australia, household wealth is being eroded and the risks of a downturn in consumer spending are heightened.

Also, with economic growth losing momentum, as well as inflation and wages growth remaining below expectations, there are plenty of reasons why the RBA might have considered a cut to the cash rate today.

The consensus from financial markets remains that interest rates will be cut later this year.

We should get a better feel for the RBA’s monetary policy position via the Financial Stability Review, released on April 12, and the Statement on Monetary Policy, released on May 10.

Chances are we will see some downwards revisions to the RBA’s forecasts for economic growth and inflation which could set the scene for lower rates over the second half of the year.

Written by Tim Lawless

Tim Lawless

Tim Lawless is head of research at CoreLogic Asia Pacific.

24 posts

Leave a Reply

Your email address will not be published. Required fields are marked *