Finance Finance News Reserve Bank keeps knife sharp

Reserve Bank keeps knife sharp

Twitter Facebook Reddit Pinterest Email

The Reserve Bank of Australia has not ruled out another interest rate cut because previous cuts have not worked.

It will continue to assess the state of the economy in coming months and adjust rates if needed, the RBA said in a statement on Friday.

“The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time,” the bank said in its quarterly statement on monetary policy.

What actually is an interest rate cut?
• NAB makes corporate history
• Wage growth at 12 year low

The official cash rate is now two per cent, the lowest in the nation’s history.

But the series of downward adjustments that brought about this record low have not had the desired effect of boosting consumer spending, the RBA warned.

“It may be that although monetary policy is having its usual effects on asset prices, the effect of asset prices on growth of expenditure is less, or at least slower than the historical relationships would suggest,” the statement said.

“This may be because households have revised down their expectations of income growth, and therefore may be less willing to carry as much debt as in the past.”

Economic growth has also been weaker than predicted, the bank noted — a potential trigger for another cut.

“GDP growth is forecast to remain below trend for a bit longer than had been anticipated in the February statement,” the statement said.

The economy was forecast to grow in the range of 2.5 to 3.5 per cent in the year to June 2016, a quarter of a percentage point weaker than previously predicted.

View Comments