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RBA’s budget day rates decision revealed

Adam Zuchetti
Adam Zuchetti
02 April 2019 2 minute readShare
Reserve Bank of Australia

The Reserve Bank of Australia has delivered its verdict on interest rates for April 2019, just hours before the federal budget is handed down.

At its monthly board meeting, the RBA left the official interest rate on hold at 1.5 per cent, where it has sat at its historic low since August 2016.

Speculation that at least one rate cut may be in the wings has ramped up in recent months, as a slew of retail collapse, poor consumer confidence and spending figures and plummeting house prices have pointed to a weakening of the Australian economy.

Nevertheless, most economists and market watchers had expected the RBA to hold fire on any rates changes until after it had seen what stimulatory measures were included in the federal budget, and the subsequent budget reply by the opposition due later this week.

All but one of the 36 economists and property experts on Finder’s RBA panel had forecast rates to again remain on hold this month.

REA Group’s chief economist, Nerida Conisbee, had said that while a rate cut is likely in 2019, it would be later in the year.

“While the likelihood of a cut is increasing, this month is still too early,” she said.

“If economic data continues to deteriorate, then we will likely see movement in the second half of the year.”

Only Market Economics economist Stephen Koukoulas had predicted a cut, stating that “the economy has slowed, with the per capita GDP recession in the second half of last year probably continuing into 2019. Inflation is low and with the household sector under pressure from falling house prices, some policy stimulus is needed”.

But consensus among the group is that Australia’s economy is slowing, and almost a quarter (24 per cent) believe a recession is now somewhat likely.

Just like REA Group, another property firm, CoreLogic, believes that falling house prices are increasingly making interest cuts a matter of when, not if.

“Although the cash rate remains unchanged since August 2016, there is a growing likelihood that the cash rate will move lower later this year,” the group’s Tim Lawless said.

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

“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.”

Mr Lawless added: “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.”

My Business will have full coverage and analysis of the federal budget, and what it means for SMEs, throughout the day tomorrow (Wednesday, 3 April).

RBA’s budget day rates decision revealed
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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