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The Reserve Bank of Australia (RBA) is not expected to feel an urgency to cut interest rates again as soon as next month, but rather, stand pat and assess incoming data, according to the latest research report from St. George Economics.
The Reserve Bank (RBA) last year cut the cash rate three times – June, July and October. These rate cuts have taken the cash rate to a record low of 0.75 percent.
More cuts were being anticipating 2020 due to economic growth running below trend, underlying inflation running under the RBA’s target band and ongoing slack in the labour market, the report added.
One of the main reasons for pushing out the timing of this rate-cut call is because the RBA has placed importance on the performance of the labour market in pulling the cash-rate lever.
Yesterday, data showed another strong outturn in jobs growth and another drop in the unemployment rate. Other key partial economic indicators since the start of this year have printed above expectations also.
Since the RBA last cut the cash rate on October 1, asset prices – the share market and dwelling prices – have also lifted. Further, notwithstanding the latest concerns around the coronavirus, downside risks in the global economy have receded.
More importantly, the central goal of the RBA in keeping the inflation rate within a band of 2-3 per cent per annum over time is unlikely to be met any time soon. The next inflation report is scheduled for release on January 29 and the annual underlying rate is expected to hold at a soggy pace of 1.4 percent.
"Wages growth is also likely to stay soft through 2020. We are leaving our call unchanged for a second cut in 2020, taking the cash rate to its terminal rate of 0.25 percent. However, we believe the follow-up rate cut in 2020 will be August, rather than June as previously forecast. As we get closer to the terminal rate, the RBA will wish to hold on to its firepower for as long as possible," St. George Economics further commented in the report.
