RBA unveils cash rate

The Reserve Bank of Australia (RBA) has held the official cash rate at 1 per cent.

The RBA reduced the cash rate in both June and July by a cumulative 50 bps, with the aim of supporting jobs growth and providing greater confidence that inflation will be consistent

Market observers had expected a cut from the RBA, in light of recent interest rate cuts from its foreign counterparts in the US and Europe.

Following the US Federal Reserve’s recent cut to its funds rate, AMP Capital’s chief economist Shane Oliver observed that it “reinforced” the need for further easing from the RBA in order to maintain downward pressure on the Australian dollar.

“On the one hand, the Fed’s easing, along with stimulus elsewhere globally, should help support global growth, which is good for Australia, [but] it’s probably not enough to change the outlook for the RBA and its perception that global risks have increased,” he said.

Mr Oliver added that he expects the Fed’s rate cuts to prompt two 25bps cuts from the RBA in the coming months — taking the cash rate to 0.5 per cent.

CoreLogic’s head of research, Tim Lawless, pointed to signs of weakness in the labour market.

“Although the RBA opted to keep rates on hold this month, the chances of at least one more rate cut this year remain high,” he said.

“A trend towards higher unemployment and a slowdown in jobs growth would be the most likely factors prompting the RBA to cut rates to a new low, as well as concerns around persistently weak household spending, subdued wages growth and low inflation.”

Managing director of mortgage aggregator Finsure John Kolenda has urged mortgage holders to keep abreast of future changes to the cash rate and take advantage of the low rate environment.

“With many owner-occupier rates already in the low 3.0 per cent range, there is an opportunity to secure a rate with a ‘2’ in front when the RBA makes a 25 basis points reduction to official rates,” Mr Kolenda said.

“Borrowers should be reviewing their home loan every time the RBA makes an adjustment to the cash rate.

“There’s no prospect of rates going up any time soon so this should be a shot in the arm for consumer confidence.”

[Related: RBA faces ‘conundrum’ in superfluous race to the bottom]