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RBA makes cash rate decision on budget day

Adrian Flores
Adrian Flores
06 October 2020 1 minute readShare

The Reserve Bank of Australia has made a decision on the official cash rate for October ahead of the government’s delivery of its postponed federal budget.

In line with expectations, the RBA has decided to keep the cash rate at 0.25 of a percentage point. According to Finder, 85 per cent of experts predicted a hold of the cash rate, while the remaining 15 per cent predicted a cut to 0.1 of a percentage point.

In forecasting a hold of the cash rate, CreditorWatch chief executive and chief economist Harley Dale said the decision is appropriate given that the RBA already has measures in place to support Australian businesses.

“The appropriate focus today is on fiscal policy, with the federal budget being brought down this evening,” Mr Dale said. 

“RBA governor Philip Lowe has repeatedly called on state and territory governments to step up to the plate in terms of spending and investment, to assist in generating the economic recovery Australia requires.

“In due course, the RBA will likely reduce the OCR to 0.10 [of a percentage point], but today wasn’t the day.

“Tonight, it is the turn of the federal government to set out a clear agenda for recovery in what is the most important fiscal update in close to a century.”

Griffith University economics professor Tony Makin said the biggest risk to recovery in coming quarters will be an appreciating exchange rate should significantly higher government spending be unveiled in the 2020–21 federal budget.

“International capital inflow reflecting foreigners buying bonds issued to fund the budget deficit strengthens the exchange rate, other things equal, as any good macroeconomics textbook tells us,” Mr Makin said.

“Further debt monetisation (printing money) by the RBA will offset this pressure but continue to cause asset price inflation. In the longer term (18–24 months away), goods and services inflation would normally accelerate as the economy rebounds.”

RBA makes cash rate decision on budget day
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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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