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RBA decides on cash rate for July

Adrian Flores
Adrian Flores
07 July 2020 1 minute readShare

The Reserve Bank of Australia has made its latest decision on whether it will keep the cash rate at a record low of 0.25 of a percentage point amid predictions many businesses could fold after government stimulus dries up in September.

The RBA has decided to keep the cash rate at 0.25 of a percentage point for the fourth consecutive month amid the Australian economy’s ongoing struggle with the coronavirus crisis.

This was largely in line with expectations, with all of the 43 experts cited in the Finder RBA Cash Rate survey predicting no change.

According to many experts, it is unlikely that the RBA will drop rates any time soon and is expected to continue supporting the economy through other stimulatory measures until the full impact of the COVID crisis passes.

AMP Capital chief economist Shane Oliver predicts the RBA is unlikely to be able to raise rates for at least the next three years.

“There is little to no value in taking rates to zero or negative, and given the recession, high unemployment, uncertainty about the recovery and inflation running way below target, it’s way too early to think about raising rates,” Mr Oliver said.

Laing+Simmons managing director Leanne Pilkington agreed, saying the banks themselves have sharpened their pencils in recent times, cutting their rates on various products to remain competitive.

“The pandemic continues to cast a shadow over the economy and the outlook is meagre, but for those whose income remains secure, a real estate purchase is comparatively affordable at present,” Ms Pilkington said.

‘Zombie’ companies expected to fail in September

The Finder survey also revealed that 19 of its experts foresee an average of 805 businesses folding after government aid dries up in September, with several investment and credit-reporting firms warning that “zombie companies” — those kept alive only by pandemic stimulus — could collapse over the next six months as stimulus measures are reduced.

According to CreditorWatch, around 550 insolvency actions were issued in April and May this year due to government stimulus relieving some pressure.

Finder insights manager Graham Cooke said many more are on the way this quarter.

“At this point, it is more of a question of ‘when’ than ‘if’ many companies become insolvent,” he said.

“Referring to them as ‘zombies’ kept alive only by taxpayer money is a convenient way to remove the human component of the coming pain.

“The people affected will not be the undead, but they will be those who were trying to cross the so-called ‘bridge to the other side’ only to find that they ran out of time.”

RBA decides on cash rate for July
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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