Finance Finance News RBA boss signals further interest rate cut likely

RBA boss signals further interest rate cut likely

reserve bank interest october
The RBA appears increasingly likely to cut interest rates for the third time in 2019. Photo: Getty
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Reserve Bank governor Philip Lowe has given his strongest hint yet that the RBA will again cut the official cash rate when it meets next week.

“The board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, make further progress towards full employment, and achieve the inflation target over time,” he said in a speech to the Armidale Business Chamber on Tuesday night.

The bank has already cut official interest rates twice in 2019 – in June and July – after nearly three years of no movement.

Consensus has been growing among experts that the bank will cut again in October, leaving Australia with an official interest rate of 0.75 per cent.

Dr Lowe said on Tuesday the drought was contributing to slower growth in the Australian economy, but acknowledged that other reasons for the slowdown have come as a surprise.

He said the extremely dry conditions have led to a fall in Australia’s farm output in the past two years and a “sharp drop” in farm income.

The drought has also put upward pressure on food prices, especially bread, milk and meat, Dr Lowe said.

“These difficult conditions have contributed to the weakness in overall household incomes and consumption, and the effects are particularly felt in regional communities,” he said in Armidale on Tuesday.

“We are all hoping that the drought breaks soon.”

Philip Lowe said the RBA does not understand all of the issues that are holding back the Australian economy. Photo: AAP

He also acknowledged the RBA doesn’t fully know why the economy is growing so slowly.

“Part of the slowing in the Australian economy remains unexplained,” he said.

“We are seeking to understand what is going on here. It is possible that it is just measurement noise, but we can’t yet rule out something more structural.”

Dr Lowe pointed to the US and China trade dispute, Brexit, tensions in the Middle East, Hong Kong and between Japan and South Korea as having disruptive effects on international trade.

“Over the past year there has been no growth at all in international trade, despite the global economy growing at a reasonable rate,” he said.

“In the face of this uncertainty, it is not surprising that many businesses are preferring to wait before committing to significant investments; they are inclined to sit on their hands for a while and see how things play out.”

The governor noted while there was no expectation of a return to strong economic growth, the RBA was forecasting growth to pick up as a result of lower interest rates, tax cuts, the depreciation of the Australian dollar and infrastructure spending.

-with AAP