The Reserve Bank of Australia (RBA) slashed the rate to its current historic low in October, following two consecutive cuts in June and July.
The outlook for Australia’s economy has little change from three months ago, RBA governor general Philip Lowe noted, but it appears to have reached a “gentle” turning point.
“The central scenario is for the Australian economy to grow by around 2.25 per cent this year and then for growth gradually to pick up to around 3 per cent in 2021,” Mr Lowe said in his statement on the rate decision.
“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth.”
In the lead up to the central bank’s meeting on Tuesday, top market and economic experts had unanimously predicted the move to hold.
Comparison site Finder found in its monthly rate survey of financial experts and economists that almost two-thirds of respondents anticipated the rate will drop 25 basis points to 0.5 per cent with the RBA’s first meeting in 2020, in February.
Around one-fifth (21 per cent) have called a fourth cut for the year in December.
Mr Lowe hinted the RBA is prepared to ease monetary policy further if it decides the economy needs a further boost.
“Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” Mr Lowe said.
IFM Investors chief economist Alex Joiner commented: “A stabilisation of the labour market gives the RBA some time to assess the impact of its policy easing to date.”
Queensland Investment Corporation chief economist Matthew Peter said likewise, noting: “With the labour market holding up and a stabilisation in global market sentiment around the prospects of recession and a rebound in the Australian housing market, the RBA can afford to take a breather in their current easing cycle.”
Graham Cooke, insights manager at Finder said the general consensus among experts is that the decreases have had little impact so far.
“We’ve seen multiple references to the RBA firing blanks with these cuts and running out of bullets in the process,” Mr Cooke said.
“If true, it’s hard to believe that flogging the same horse will produce a different outcome. The RBA has not spoken fondly about negative interest rates in other countries, so I’d expect extra cash to be printed before we see a zero or subzero cash rate.”
The RBA’s outlook for the global economy has its risks tilted to the downside, with the uncertainty of the US-China disputes still affecting international trade flows and investment.
Consumers fear recession, drop in economic sentiment
The main domestic uncertainty, Mr Lowe said, is the outlook for consumption, with only modest increases in household disposable income continuing to weigh on consumer spending.
While wages growth remained subdued, employment had grown, with the unemployment rate remaining at around 5.25 per cent over recent months.
Mr Lowe urged for wage increase, noting there “is need for inflation to be sustainably within the 2-3 per cent target range.”
Although half of Australians were found to be expecting a recession in the next 12 months, in the Finder Consumer Sentiment Tracker, only 9 per cent of experts have indicated they think it is likely. Most (69 per cent) have said it is either unlikely or very unlikely.
Experts have noted the concern among consumers, with half (56 per cent) telling Finder they think households are holding back on spending in fear of recession.
However the average percentage of economists who felt positive across five economic metrics measured by Finder’s Economic Sentiment Tracker (employment, wage growth, housing affordability, cost of living and household debt) fell from 30 per cent in December last year to only 14 per cent this month.
“I’ve never before seen all five of these metrics in the teens,” Mr Cooke said.
The tracker, established in March last year, set its record low during the last month for economic sentiment in housing affordability (17 per cent).
But Mr Lowe said in his statement on monetary policy easing that there are “further signs of a turnaround in established housing markets, especially in Sydney and Melbourne.”
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
