After months of a seemingly market-wide understanding the Reserve Bank of Australia (RBA) would not consider cutting the official cash rate from the record low of 0.25% it has sat at since mid-March, market expectation has dramatically shifted in recent weeks.
However, even with a significant proportion of commentators predicting a reduction to be announced at today’s meeting, the central bank has again kept the rate on hold.
According to Finsure managing director John Kolenda, this afternoon's decision makes it all the more likely the RBA will instead move next month on 3 November, which is not only Melbourne Cup day, but also the date of the presidential election in the United States when Donald Trump and Joe Biden will go head to head.
“When the RBA cut its official rate to 0.25% in March this year, this seemed as low as rates would go in Australia, but recent commentary from the central bank signalling a further easing of monetary policy has changed those expectations,” Kolenda explained.
The RBA board's decision to postpone taking action makes further sense given the federal budget for 2020-2021 is set to be unveiled this evening, during which the government will illuminate how it intends to steer the nation out of its first recession in 30 years.
“The decision to hold the rate for now suggests that the RBA wants to assess the budget in detail before making a decision about further moves,” said Graham Cooke, insights manager at Finder.
Yet while Cooke wouldn’t be surprised to see a 15 basis point reduction in the cash rate in November, he believes it would be unlikely to have much of an impact on Australia’s economy.
“The cash rate has fallen by 125 basis points over the last year and a half– 15 more is unlikely to make much of a difference beyond making the RBA feel like they are at least doing something,” he said.
CreditorWatch chief economist Harley Dale also voiced support for the central bank’s decision to keep the cash rate rate at 0.25% for now.
“In due course, the RBA will likely reduce the official cash rate to 0.10%, but today wasn’t the day,” he said.
“The appropriate focus today is on fiscal policy, with the federal budget being brought down this evening. RBA Governor Phillip 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.
“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,” Dale finished.
