While the prospect of a cut was heightened by rising unemployment and the revelation that the RBA almost cut rates in November, the bank has played it safe.
Interest rates remain at 0.75 per cent.
RBA Governor Philip Lowe told the Annual Australian Business Economists dinner last week that he thought it was unlikely that Australia would reach interest rates of 0.25 per cent – the threshold at which the RBA would consider unconventional monetary policy.
Others aren’t so sure.
“Growth is likely to remain lower for longer keeping the economy away from full employment and the inflation target for even longer than the RBA is forecasting,” AMP chief economist Shane Oliver told the Finders Cash Rate survey prior to the cut.
“As a result further easing is likely. The RBA should be cutting in December but appears inclined at this stage to continue to ‘wait and assess’.”
Governor Lowe has previously called upon the federal government to use the opportunity of low rates to go on a spending spree.
“We need to remember that monetary policy cannot drive longer term growth, but that there are other arms of public policy than can sustainably promote both investment and growth,” Governor Lowe said.
That sentiment has been echoed by 4D Infrastructure, a global asset manager that invests in infrastructure.
“If you think about the need for infrastructure spend that I’m talking about, if you put a number on it, it’s maxed at $4 trillion by 2040 of infrastructure capacity that’s needed,” chief investment officer Sarah Shaw told Investor Daily.
“If you think about that and you’re in an interest rate environment as low as it is today, if you’re not borrowing to invest in a much-needed infrastructure, then there’s something wrong.”
