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Rate cut ‘pencilled in’ for June

Rate cut ‘pencilled in’ for June

Despite keeping the cash rate on hold against expectations of a cut, the Reserve Bank is expected to pull its monetary policy lever in June amid a forecasted rise in unemployment

Following the Reserve Bank of Australia’s (RBA) decision to hold the official cash rate at 1.5 per cent for the month of May, senior economist at AMP Capital Shane Oliver, who expected a cut, stated that the inertia would be short-lived with labour market conditions expected to weaken.

“While the RBA still sees the labour market as being strong, it has further revised down its 2019 growth forecast to 2.75 per cent (from 3 per cent in February and from 3.25 per cent in November) and its underlying inflation forecast to 1.75 per cent for this year (from 2 per cent in February and from 2.25 per cent in November) and to 2 per cent for next year (from 2.25 per cent in February),” he said.

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“This reflects weaker than expected data for growth and inflation in recent months.”

He continued: “Our assessment is that unemployment will drift up from here, not dramatically but to around 5.5 per cent by the end of the year. And we continue to see the RBA cutting the cash rate to 1 per cent by year end.

“We have pencilled in a cut for June but concede that the RBA may wait a bit longer given that there is only one month’s worth of jobs data to be released between now and then.”

Also commenting following the RBA’s announcement, the managing director of the Finance Brokers Association of Australia (FBAA) said prospective home buyers would be disappointed with the RBA’s decision to hold the cash rate, particularly amid weakness in the credit space.

FBAA managing director Peter White said the RBA board referenced employment figures strongly in their statement on monetary policy but also noted the impact of the changing dynamic on the housing market.

“The RBA has admitted that the demand for credit by investors has slowed noticeably as has growth in credit for owner-occupiers,” Mr White said.

“Housing does play a major role in the health of the economy, and while I understand inflationary pressure is subdued in part because of lower housing costs, we need a healthy and resilient housing market and we need accessible and affordable credit to achieve that.”

Like Mr Oliver, Mr White remains confident that a rate cut is still imminent.

“I would have liked to have seen a rate cut, but I firmly believe a reduction is still on the agenda in the coming months,” he said.

[Related: RBA announces cash rate]

Rate cut ‘pencilled in’ for June
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