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RBA makes August cash rate call

Adrian Flores
Adrian Flores
04 August 2020 1 minute readShare

The Reserve Bank has made its decision on whether to move the cash rate away from its current historic low of 0.25 of a percentage point following recent lockdown restrictions in Victoria.

Broadly in line with the expectations of economists, the RBA has kept the cash rate at 0.25 of a percentage point. According to Finder, all 37 experts showcased had predicted the RBA’s decision for August.

AMP Capital chief economist Shane Oliver said that having provided massive monetary stimulus back in March, the RBA is still in “watch and wait” mode, with the focus on fiscal policy.

“It could still ease monetary policy a bit further later this year, but the bank does not see any value in going negative on rates, cutting to, say, 0.1 [of a percentage point] is hardly worth the effort (although it’s possible) which leaves more QE as the main tool for any further easing. And rate hikes are still at least three years away.”

Griffith University economics professor Tony Makin said COVID-19 continues to create gross economic uncertainty, domestically and globally.

“However, given the large ongoing bond issues by federal and state governments to fund huge budget deficits due to responses to contain the virus’s spread, market interest rates should continue to rise, with the three-year bond rate already above the RBA’s target 0.25 [of a percentage point],” Mr Makin said.

“The dollar has appreciated some 25 per cent March-July, reflecting capital in-flow chasing Australia’s AAA rated bonds and could keep climbing as happened post-GFC, to the detriment of industries in the tradables sector of the economy, making economic recovery that much harder.”

RBA makes August cash rate call
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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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