With the purpose to boost economic development, the RBA cuts rate. First market reactions are coming in and the analysts are elaborating on the nature of the move. What is next for the markets?
2 August, AtoZForex – In order to accelerate the economic growth, the Reserve Bank of Australia (RBA) has cut the official cash rate to a historic low of 1.5%. The first bank which reacted to the cut was the Commonwealth Bank of Australia. It said it would lower its standard variable interest rates for mortgages by 0.13%. The bank decided to pass on only about 50 percent of the RBA’s rate cut, blaming it on a tougher regulation and higher costs. National Australia Bank reduced its mortgage rates by 0.10% withholding even more of the official cut.
Governor of RBA Glenn Stevens said in the official statement: despite a big decrease in business investment, the recent data shows growth at a moderate pace. According to Stevens, other areas of domestic demand including exports, are expanding at the same pace or above the trend. Indicators of the labour market are still somewhat mixed. However, they are consistent with the modest speed of expansion in employment sector in the near term.
Glenn Stevens also pointed out: recent data shows that inflation was at 17-year low. Moreover, it would probably stay low for some time, while banks are more willing to lend money due to the low interest rates. This fact is helping the economy indeed.
“The board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”
The governor will have a chance to elaborate more on the reasons of why the RBA cuts rate on Friday during the quarterly statement on monetary policy and next Tuesday in his final address as governor to business economists in Sydney as he will be succeeded on September 18 by Phillip Lowe, his deputy.
RBA cuts rate: It “is all about inflation”?
The Chief Economist of CBA Michael Blythe says that the whole move was “all about inflation”. As RBA cuts rate, he doubts that the housing market will be “immune” from this move.
” The cut is there and the risk is that we see a follow up later on this year. In the absence of those two things then your only policy option left in low inflation is a rate cut as we’ve just seen.”
Mr. Blythe stated that the RBA is in a way a “policymaker of last resort”.
“They were probably reluctant to cut rates, but while they would like a lower currency that’s hard to engineer. While they would like more infrastructure spending that’s something they can’t deliver themselves.”
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