Written by Mark Thomas
3 September, 2019
Interest rates on hold this month but further drops not too far away.
The official RBA release today indicates that we are in a precariously weak global and domestic economy and that the RBA is watching carefully. My take is that there will be more cuts this year. RBA governor Philip Lowe flagged earlier this week that growth in the Australian economy is continuing to disappoint. It seems that the RBA’s goal is to reduce unemployment to 4.5 percent with the aim of producing wages growth. Currently unemployment sits at 5.2 percent.
Earlier in the week the Australian Dollar dropped to 67 cents following news that the “retail recession” was now worse than anything faced since the GFC. The Australian Dollar is usually a lead indicator for interest rates.
I have taken phrases from the official RBA release today that caught my eye. RBA words for you to consider:
“risks are tilted to the downside”
“trade and technology disputes are affecting international trade flows and investment as businesses scale back spending plans”
“persistent downside risks to the global economy combined with subdued inflation have led…. to reduce interest rates this year and further monetary easing is widely expected”
The official interest rate in Australia (Source: RBA)
… we will see the Australian economy respond or bounce as the housing sector flattens out and we see a Spring rally in property prices and sentiment.
“Borrowing rates for both businesses and households are also at historically low levels”
“Economic growth in Australia over the first half of this year has been lower than earlier expected”
“household consumption weighed down by a protracted period of low income growth and declining housing prices”
“Inflation pressures remain subdued and this is likely to be the case for some time yet”
“It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments”
“a pick-up in growth in household disposable income and a stabilisation of the housing market are expected to support spending.”
While most of these phrases are somewhat gloomy they do paint a picture of stable-to-falling interest rates. The last comment does suggest a modicum of balance in the RBA’s outlook. Again, my view is that we will see the Australian economy respond or bounce as the housing sector flattens out and we see a Spring rally in property prices and sentiment.