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Weekly Economic Commentary

Weekly Economic Commentary

Categories: Commodities, General

Some media commentary suggests that a rate cut this week is a ‘done deal’ and has linked this to Reserve Bank concerns that, with other central banks offshore cutting rates or pursuing quantitative easing policies, it needs to ‘up the ante’ in its quest for a lower currency.

However, data on the economy since the last RBA meeting back in December has generally been positive, most notably the two labour market reports which showed the unemployment rate has actually fallen.

While the RBA has to look forward and be pre-emptive, there is already stimulus in the pipeline for households from the lower oil price (a quasi-rate cut), and fixed lending rates have already come down, driven by lower global long term rates.

Has the RBA changed its mind from December when they said “a period of stability in interest rates is the most appropriate course of action”?

In the absence of any public commentary from RBA officials since December, I can’t make that call with any certainty. Plus, cutting the official cash rate now would place more pressure on the RBA’s untested “macro prudential” measures to deal with the risk of stimulating the Sydney and Melbourne property markets. So for me, the case for another RBA rate cut this week hasn’t been substantiated yet and the best I can envisage is a change in the language accompanying the post-Board meeting statement, removing the reference to “stability” and altering to “appropriate for the time being” or maybe “scope for easing”.

Source: Rural Bank


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