On Tuesday, the Reserve Bank of Australia (RBA) cut the official cash rate to a historic low of 0.75%. It has also admitted that further cuts are on the horizon – which means interest rates of near zero, and beyond. Here’s what that means for the Australian economy.
[referenced url=”https://www.lifehacker.com.au/2019/10/the-rba-rate-cut-explained-in-60-seconds/” thumb=”https://www.lifehacker.com.au/wp-content/uploads/sites/4/2019/03/Money-410×231.jpg” title=”How The RBA Rate Cut Will Affect Your Wallet” excerpt=”On the first Tuesday of every month, the Reserve Bank of Australia (RBA) decides if the cash rate will increase, decrease or should remain the same. After sitting unchanged for almost three years, there have been three rate cuts this year, and it is now sitting at an historical low of 0.75%. Here’s what that means for ordinary Australians.”]
Anyone who thought that with the Reserve Bank’s cash rate now close to zero, its run of interest rate cuts was over, needs only to read the last sentence of Governor Philip Lowe’s announcement after Tuesday’s cut:
The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
For the longest time, the run of cuts was over.
Lowe’s immediate predecessor, Glenn Stevens, cut the cash rate to a record low of 1.5% in August 2016 as something of a “parting gift”, allowing Lowe to take over and keep it steady, unchanged for a record 34 months.
For most of those three years he made it clear the rate was unlikely to fall further. Six times he said the next move in rates was likely to be up, “rather than down”, pointing to rate increases overseas and progress on jobs and returning Australia’s unusually low inflation rate to his target band.
By February this year he was backtracking. Although it wasn’t apparent in the published figures, the unemployment rate was about to begin climbing. Wage growth had been far weaker than forecast, inflation showed no sign of returning to the centre of his target band, and forecasts for global growth were falling.
Reserve Bank cash rate