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Has the Reserve Bank delivered an early Christmas gift?

Adam Zuchetti
Adam Zuchetti
03 December 2019 2 minute readShare
Reserve Bank of Australia

There’s been plenty of debate about whether the Reserve Bank of Australia would cut interest rates once again to boost Christmas sales. Now we have an answer.

With little wiggle room left given that rates are at record lows, every bit counts. And at its monthly board meeting on Tuesday (3 December), the RBA opted to keep what little room it has left and hold fire on any more cuts.

That means the official interest rate remains at the record low of 0.75 per cent.

In a statement accompanying the announcement, governor Philip Lowe said that the “outlook for the global economy remains reasonable”, adding that “while the risks are still tilted to the downside, some of these risks have lessened recently”.

He also said that Australia’s economy “appears to have reached a gentle turning point”, following what he described as “a soft patch” in the second half of 2018.

“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth,” Mr Lowe said.

“The main domestic uncertainty continues to be the outlook for consumption, with the sustained period of only modest increases in household disposable income continuing to weigh on consumer spending.”

However, he cited the ongoing drought and “the evolution of the housing construction cycle” as major uncertainties for the near-term health of the economy.

Keep an eye on February

Most economists and finance commentators had anticipated interest rates to be left on hold at the final board meeting of 2019. But the next meeting, to be held in February 2020 (the RBA board does not meet in January), could be different, pundits suggest.

All but one of the 33 figureheads on Finder’s RBA Cash Rate Survey had tipped the RBA to keep rates on hold this month, but exactly two-thirds of the panel are expecting the next rate cut to come in February.

Agreeing with this view was John Kolenda, managing director of brokerage Finsure, who suggested that a wait-and-see approach in December would allow the RBA to see how Christmas and Boxing Day sales performed, as well as receive other key data on the economy, before making any more rate cuts.

Are rate cuts even useful anymore?

Many Australians across the finance, business and property space are giving up hope that rate cuts will bring about the intended stimulus for the nation’s economy.

Some, such as Finsure’s Mr Kolenda, believe the three interest rate cuts in 2019 “have been helping to provide consumer confidence with a boost”, but others are not so convinced.

Only a third of SMEs in a recent My Business poll believe we will see a positive impact from the measures implemented to date by the Reserve Bank and the federal government.

Indeed, the Australian Industry Group’s Julie Toth suggested more rate cuts are moot on their own.

“In the absence of meaningful tax reform and microeconomic reform, another rate cut probably won’t help much, but it is the only response that the RBA can offer,” she said.

For its part, the RBA suggested that the interest rate cuts already handed down are working.

The RBA’s Mr Lowe said that “the easing of monetary policy this year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range”, and that is has boosted asset prices (such as housing) and put “downward pressure on the exchange rate”.

The RBA previously cut interest rates in June, July and October this year.

Has the Reserve Bank delivered an early Christmas gift?
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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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