Australia: RBA cuts rate to record low in October in bid to revive growth
At its 1 October monetary policy meeting, the Reserve Bank of Australia (RBA) trimmed the cash rate from 1.00% to 0.75%, marking an all-time low. October’s decision, which was in line with the expectations of most market analysts, represents the third cut this year, the previous two having taken place in in June and July. Moreover, the RBA’s dovish tone signaled that further monetary policy easing could be on the cards in the coming months.
The decision to cut rates was taken to support employment and income growth, and to bring inflation closer to the Bank’s 2.0%–3.0% target range. Inflation rose from 1.3% in Q1 to 1.6% in Q2, although remained below the Bank’s band, while the unemployment rate inched up to a one-year high of 5.3% in August—above the 4.5% level the RBA considers to be conducive to faster wage growth and inflation. Moreover, growth in H1 was lower than expected—restrained by falling housing prices, slow disposable income growth and lackluster investment activity—and a contraction in retail sales in July points to protracted weakness in household spending.
Looking forward, the RBA expects headline inflation to fall short of the target range in 2020 and to climb slightly above 2.0% only in 2021. In its communiqué, the Bank identified uncertain domestic consumption dynamics and ongoing global trade and technology disputes as the key risks to the outlook. However, it also noted the housing market in Melbourne and Sydney is showing signs of recovery. Against this backdrop, the Bank noted that “an extended period of low interest rates will be required in Australia” in order to reduce unemployment and bring inflation to within the target range, and did not rule out further monetary easing.
The next monetary policy meeting is scheduled for 5 November.