RBA Cuts Cash Rate as Expected, Next Cut Likely August

• Published on
• 04 Jun 2019, 07:14 AM

By Sophia Rodrigues

The Reserve Bank of Australia cut the cash rate to a new record low of 1.25% and left the door open for further easing as it seeks to reduce the spare capacity in the economy to help achieve the inflation target.

The key line in the statement pointing to a dovish guidance is the last one where the RBA said it will “continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.”

That line also suggests the next cut is unlikely to be a follow-up one in July but the RBA would more likely wait until August when it next updates key forecasts for the economy.

Rate cuts following that would depend on how the housing market reacts to lower mortgage rates and APRA’s likely steps that would reduce the floor rate based on which a borrower’s borrowing capacity is calculated. The RBA thinks financial stability concerns are unlikely to re-emerge (I will write more on this later) but that is not to say it won’t pay close attention to any emerging risks and adjust its thinking accordingly.

Email: sophia@centralbankintel.com