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Home / Business / RBA holds the official interest rate on hold at 1% but leaves the door open for cuts

RBA holds the official interest rate on hold at 1% but leaves the door open for cuts



The Reserve Bank of Australia (RBA) has kept the official interest rate on hold at its historically low level of 1.0%.

RBA Governor Philip Lowe said on Tuesday that growth in the Australian economy continues to disappoint. [19659002] "Australia's economic growth during the first half of this year has been lower than previously anticipated, with household consumption weighed down by a prolonged period of low income growth and falling home prices and sales," he said in an official statement. [19659002] "The most important domestic uncertainty remains the outlook for consumption, although an increase in household disposable income and a stabilization of the housing market are expected to support spending."

The decision was in line with consensus forecasts, with only four economists out of 31

surveyed by Bloomberg who tipped yet another cut.

READ MORE: Most Australian economists believe interest rates will be held on hold in September, but expect RBA's time to expire

It comes after RBA lowered interest rates twice in succession in June and July. Before that, the cash rate had set at 1.5% for the better part of three years.

RBA has previously indicated that one of its most important calculations remains unemployment. Lowe has previously revealed that RBA's goal is to reduce unemployment to 4.5% in order to finally produce wage growth.

Unemployment currently stands at 5.2%, and despite the economy generating a number of new jobs last month, it is unlikely that the level will rise, according to RBA forecasts.

"Wage growth remains subdued and there is little upward pressure currently, with strong labor demand being met by more supply," Lowe said.

If that is still the case, the RBA will have no choice but to cut, according to BIS Oxford Economics & # 39; chief economist Sarah Hunter.

"The focus on the labor market remains, and with continued unemployment of 5.2% – despite continued solid job growth – we expect to see further relief this year and early 2020 to support employment and wage growth," Hunter said in a note on RBA's decision.

Reads from Lowe's statement on Tuesday, the

"It is reasonable to expect that a longer period of low interest rates in Australia will be needed to make progress in reducing unemployment and to achieve more secure progress towards the inflation target, "he said. [19659002] The market has already priced in one cut, either in October or November, and a new one early next year, as retail spending continues to decline and economic growth remains well below the trend

The latest GDP figures on Wednesday are expected to show the slowest growth in at least a decade, and investment bank UBS has predicted the slowest growth since the recession in 1991, m a better-than-expected export figure may prove to increase them slightly.

Anyway, all signs point to an Australian economy that is continuing to decline. This will help strengthen expectations of interest rate cuts sooner and later.

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