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Last week, Reserve Bank of Australia (RBA) Governor Phillip Lowe communicated further cash rate cuts are likely, possibly coming as early as tomorrow.
Addressing the Armidale Business Chamber, Lowe acknowledged the central bank has yet to achieve either goal of moving inflation within the 2-3% target or reducing unemployment to 4.5%, even after cuts of 25bps in both June and July.
The unemployment rate has actually risen since July’s rate cut, despite the expectation it would remain unchanged, increasing by 0.1% to reach 5.3% in August. Further, inflation has been below the target range for “some time now,” as Lowe put it.
Additionally, the economy has been going through a “soft patch,” with GDP growing by just 1.4% over the year to June, an outcome which was “a bit of a surprise.”
“Further monetary easing may well be required. While we are at a gentle turning point and expect growth to pick up, the strength and durability of this pick-up remains to be seen,” Lowe said.
“It is nevertheless likely that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieving more assured progress towards the inflation target.
“The board is prepared to ease monetary policy further if needed to support sustainable growth in the economy.”
The board’s decision will also take international factors into account, as Lowe noted that interest rates around the world are low and continuing to decrease.
“We cannot completely insulate ourselves from long-lasting shifts in global interest rates,” he said.
“If we did seek to ignore these shifts, our exchange rate would appreciate, which, in the current environment, would be unhelpful in terms of achieving both the inflation target and full employment.”
“We will all be better off if businesses have the confidence to expand, invest, innovate and hire people. Given Australia's strong fundamentals, this is not out of our reach, but it does require constant effort.”
The RBA board will make its next monetary policy decision tomorrow, 1 October.
Chief economists across both major and non-major banks have communicated expectations a cut will come tomorrow, while others are predicting the next move will not come until November.
