Should there be another rate cut?
Team Veye | 09-Sep-2019
When some of the economists were favouring or even advocating for another rate cut, RBA’s decision to keep the official rates on hold at its historic low of 1% hasn’t surprised the industry. Now, what could be the rationale behind leaving the rates unchanged?
The decision though in line with the consensus forecasts comes after the RBA cut rates twice consecutively in June and July. Prior to that, the cash rate had been 1.5% for most of the three years.
RBA governor had earlier expressed the continuing disappointment due to growth in the Australian economy. He candidly admitted that the Australian economy had slowed.
While a rate cut now wasn’t too obvious, thaw in the US-China trade spat made it even more unlikely.
RBA had indicated that unemployment remains its major concern. The unemployment rate currently is 5.2%. Despite generating many new jobs last month, this figure is hardly moving. The central bank believes that full employment could be achieved at 4.5%.
The central bank believes that at this level wage growth will pick up followed by increased spending. Thus providing the much-needed stimulus. The market believes that an extended period of low-interest rates is required to help in reducing unemployment and achieve the desired inflation target.
As retail spending continues to be weak and GDP figures reflecting the same, markets are convinced that the RBA will cut rates around October, with another interest rate cut expected in 2020.
Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.