Published: Wed, July 03, 2019
Markets | By Otis Pena

RBA cuts interest rates to a new low of 1pc

RBA cuts interest rates to a new low of 1pc

Investors are pricing in a Federal Reserve rate cut this month and Goldman Sachs Group Inc. says the European Central Bank will lower its deposit rate by 20 basis points and restart asset purchases in September.

He also piled pressure on the newly re-elected Liberal National government to respond with fiscal stimulus of its own, something the central bank has been crying out for. "The board will continue to monitor developments in the labor market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time".

"Another option is structural policies that support firms expanding, investing, innovating and employing people".

Market commentators now expect another interest rate cut before the end of 2019, but there are unlikely to be further cuts required.

The odds of another cut had been shortening since RBA governor Philip Lowe told the market last month that one cut was unlikely to deliver the fall in unemployment the bank is looking for.

Finance Minister Mathias Cormann told Sky News that the Coalition are "kicking in the same direction as the Reserve Bank... to ensure that we continue to build a stronger economy and can continue to create more jobs".

"For us, the key message from this is that the RBA must be quite anxious about growth - back-to-back cuts suggest they have felt a sense of urgency", said HSBC chief economist Paul Bloxham.

The cut is the second in consecutive months.

"Consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices", Lowe said.

China trade talks 'back on track' says Trump
Also, American companies such as Intel or Qualcomm were making a lot of money by selling their products to Huawei. The dispute escalated when talks collapsed in May after Washington accused Beijing of reneging on reform pledges.

Clearance rates at auctions have rebounded and prices steadied as buyers returned.

Released yesterday, the CoreLogic home value index charted the first increase in housing values in Sydney and Melbourne since 2017, albeit by just 0.1% and 0.2% respectively.

Any stabilization would be a tonic for spending power and confidence given Australia's housing stock is valued at A$6.6 trillion (US$4.60 trillion), or nearly four times the country's annual gross domestic product.

"So it's hard to see how the Bank can conclude that anything other than further easing is required".

Much more will be needed, however, for the RBA to meet its target of pushing unemployment down to around 4.5 per cent - a low not reached since 2008 - from the current 5.2 per cent. "Savings rates have been cut substantially over the last few years, significantly more than cuts to mortgage rates".

"It is appropriate to be thinking about further investments in (infrastructure), especially with interest rates at a record low, the economy having spare capacity and some of our existing infrastructure struggling to cope with ongoing population growth", Dr Lowe said in a dinner speech to the business community in Darwin on Tuesday night.

A conservative independent lawmaker has already committed to supporting the legislation.

"Bank lending conditions remain pretty restricted and because the economy is soft, wages growth is going to remain soft which will put a ceiling on price growth", he added.

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