Finance Finance News RBA rate cuts ‘likely’ as jobless rate stagnates

RBA rate cuts ‘likely’ as jobless rate stagnates

reserve bank interest rate cuts
RBA rate cuts look likely for June and August. Photo: Getty
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The Reserve Bank of Australia appears set to cut official interest rates  within weeks if unemployment continues to hover at 5 per cent.

In a speech on Tuesday, RBA Governor Philip Lowe said “a decrease … would likely be appropriate” as early as June.

It would be the first move since rates were cut to their record low 1.5 per cent in August 2016.

Dr Lowe’s speech followed the release of the minutes from the RBA board’s May 7 monetary policy meeting, which showed board members “discussed the scenario where inflation did not move any higher and unemployment trended up, recognising that in those circumstances a decrease in the cash rate would likely be appropriate”.

With the RBA having held the cash rate at its record low 1.5 per cent for a 33rd straight month, official data subsequently showed unemployment had instead risen to a worse-than-expected 5.2 per cent in April.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” Dr Lowe said.

“Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

Cuts predicted for June, August

Ryan Felsman, a senior economist with Commonwealth Bank stockbroking arm CommSec, said the Reserve Bank was “likely to cut interest rates at both the June and August board meetings”, pending employment data.

“The Reserve Bank governor had previously thought that if unemployment fell below 5 per cent, then inflation was likely to rise,” Mr Felsman said.

“The governor now believes that the jobless rate can fall further without leading to a spike in inflation.”

Mr Felsman noted that consumer confidence is “OK without being super-positive”, but the RBA board meeting minutes paint a “decidedly less upbeat” picture than previous iterations.

“With inflation contained, consumer spending restrained, the global economic backdrop less favourable due to trade tensions and weaker leading indicators of jobs growth, further monetary policy support for the economy is required,” Mr Felsman said.

“Proposed tax cuts, infrastructure spending and policies to support the housing market are providing additional stimulus.”

NAB markets economist Kaixin Owyong similarly predicted a 25 basis point rate cut in June, noting the minutes had dropped the reference to “not a strong case” for a near-term move in the cash rate.

-with AAP