Australia's central bank keeps interest rate on hold at 0.75 pct

Marco Green
February 7, 2020

First, the RBA was not going to rush to a rate cut to try to offset the negative impact of both on the economy, even though it fully expects them to have a significant combined impact through (at least) the March quarter.

Yet it expected rebuilding from the bushfires to boost growth in the second half of the year, along with a pick up in consumption as rising home prices lifted household wealth.

Given this outlook, RBA Governor Philip Lowe said the bank's policy-making Board had considered the case for further policy easing, following three reductions a year ago that had left interest rates at a record low of 0.75%.

THE Reserve Bank of Australia has held the cash rate at a record low 0.75 per cent and had "surprisingly" little to say about the headwinds presented by the catastrophic summer bushfires and coronavirus crisis.

This leaves the RBA free to think about rates totally in the context of the strength of the economy.

Marnie Baker, managing director of Bendigo and Adelaide Bank, argued that the cuts had the "perverse effect" of compromising confidence.

However, Westpac expects another interest rate cut in April.

This is particularly the case with interest rates as low as they are.

media_cameraReserve Bank Governor Philip Lowe.

He said he had "a lot of empathy" for older Australians who felt that after saving, they were under-served by low interest rates and were conservative in their financial decisions for their whole lives.

So, various key statistical data will pay very careful watching - the jobless numbers, retail sales and other measures of consumer spending, wages and construction in particular.

Dr. Lowe said he didn't want to make any further cuts, but the RBA would do so if unemployment increased and inflation stalled.

The probability of an increase in the cash rate is "very low", he said.

The Reserve Bank left its official interest rate unchanged, as I told you it would a week ago.

"If the unemployment rate were to be trending in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would change".

Updated forecasts in the RBA's 80-page outlook showed it now expected economic growth would only reach 1.9% in the year to June, down from a previous prediction of 2.6%.

ANZ's Australian chief executive, David Plank, said the RBA had switched to "patient mode".

Other reports by Click Lancashire

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