August 04, 2016
On 2 August 2016, the RBA announced that it had cut its cash rate to an historically low 1.50%. This followed-on from May’s cut but still leaves Australian rates well above those of the USA, UK, EU and Japan where rates have been around zero for many years.
The background to the latest rate cut was persistently low inflation. With a number of countries experiencing deflation (ie, falling prices), the RBA is keen to boost spending and push inflation towards its target rate of 2-3%.
So, are there more rate cuts to come? A number of bank economists – including JP Morgan and Macquarie Bank – are forecasting that the cash rate will fall to 1.00% in early 2017. With the booming housing market now mellowing, the RBA seems less concerned with further stoking the property fire. Further reductions in interest rates should also help devalue the Australian dollar, boosting export prospects. The majority of forecasters now expect rates to remain on-hold for the balance of 2016 but he next move may still be downwards.