Amid a flurry of expectations of a rate cut sometime soon, the Reserve Bank of Australia has revealed its much-anticipated monthly verdict less than a fortnight out from the federal election.
The RBA has once again decided to keep rates on hold this month at the historic low of 1.5 per cent, where they have remained since a cut back in August 2016.
That was despite concerns about flat economic growth and subdued wages, as well as inflation currently sitting at just 1.3 per cent, well below the RBA’s target band of 2 to 3 per cent.
Most commentators and economists had expected rates to remain on hold until after the election is held next Saturday, 18 May, including 30 of the 40 panellists on Finder’s RBA Cash Rate Survey.
But bets remain firmly on interest rates falling in the short term, Finder’s insights manager, Graham Cooke, said.
Tim Lawless of property data firm CoreLogic agreed.
“The flat CPI reading for the March quarter wasn’t enough to drag interest rates lower, although the likelihood of a cash rate cut over coming months remains high,” he said.
“While inflation remains below the RBA’s target range, labour markets generally remain relatively strong, supported by NSW and Vic, and the decline in housing values has lost some speed over recent months.
“If the cash rate does move lower later this year, a reduction in mortgage rates would provide some support for housing demand; however, we may not see quite as much stimulus for housing market conditions that we have seen after previous rate cuts.
“At this stage, most of our experts are predicting at least one cut by August and many expect another drop after that — a cash rate of 1 per cent is in sight.”
‘Interest rates not the problem’: Westpac
It comes as Westpac CEO Brian Hartzer suggested that interest rate cuts are not the solution to fixing Australia’s subdued economy and property market.
Speaking at the release of Westpac Group’s first-half results — in which the bank posted a “disappointing” 24 per cent fall in profit to $3.17 billion — Mr Hartzer called on regulators to consider alternative, holistic measures to stimulate the economy.
“Interest rates are not the problem,” he said.
“It is true that a reduction in the cash rate will help a bit on consumer spending, but the question we should be asking is, how do we get businesses to invest in growth and hire people, which would raise wages and support spending.
“We must drive policy changes that incentivise investment, improve productivity and build business and consumer confidence.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.