Rates hold call cuts deep but bank governor offers hope
Poppy Johnston |
Borrowers have missed out on another interest rate cut – for now – as the Reserve Bank of Australia waits for more proof inflation has been beaten.
But further repayment relief should be on the horizon, with Governor Michele Bullock confirming the unexpected decision to stay on hold at 3.85 per cent was about “timing rather than direction”.
“What we’re looking for is confirmation that we are basically on our forecast path and that gives us confidence that we are on a path towards easing further,” Ms Bullock said on Tuesday.
The central bank’s July decision defied expectations of a 25 basis point cut from financial markets and most economists to reflect global uncertainty and subdued consumer spending.
For six of the nine board members, the strong jobs market and hints of lingering inflation pressures were enough to vote for no change.
Three favoured a cut, as revealed by unattributed votes made public for the first time since transparency reforms began.
The central bank has delivered two interest rate cuts this year, reflecting softening inflation and a shifting focus to the trajectory for economic activity.
Unions, social services groups and construction lobbyists were critical of the surprise hold, with Australian Council of Trade Unions president Michele O’Neil describing it as “a blow for working people”.
“Working people can’t afford to wait longer, especially not when all the key economic indicators are trending steadily in the direction the Reserve Bank wants them to,” she said.
Oxford Economics Australia economist Harry Murphy Cruise said the tariff uncertainty and good news on inflation warranted a cut in July.
“Yes, the domestic economy has pockets of strength and unemployment is low, but we’d rather see momentum build in the economy ahead of a potential storm than risk being caught flat-footed if conditions sour,” he said.
Betashares’ David Bassanese was among a handful of economists who had predicted no change in July.
In his view, it made sense for the central bank to wait for the more reliable quarterly inflation numbers later in July before cutting rates again in August.
The Trump administration’s erratic trade policies were another risk factor.
“Should market volatility return and global economic uncertainty intensify, there’s a chance the RBA could even dust-off the 0.5 percentage point rate cut option at the August policy meeting,” he said.
Treasurer Jim Chalmers acknowledged the pressure borrowers were still feeling but said the “direction of travel” on inflation and interest rates was clear.
“We should be proud of that progress on inflation, because we haven’t had to pay for it with a big spike in employment or multiple backward quarters of growth,” he said.
Shadow treasurer Ted O’Brien said interest rates had been “too high, for too long” and the federal government’s economic management was to blame.
“Public sector spending is only leading to homegrown inflation,” he said.
“Until Labor starts re-installing some discipline around fiscal responsibility, it will only make the job of the RBA harder.”
AAP
