RBA reveals cash rate decision - Feb 2020

The Reserve Bank of Australia (RBA) has cut the official cash rate to a new historic low of 0.50 per cent.

In the lead up to the decision, analysts had mixed expectations regarding the outcome of the February monetary policy meeting.

A cut to the official cash rate in February was widely anticipated by analysts in the final months of 2019, however many suggested that the uncertain impacts of Australia’s unprecedented bushfire season on the domestic economy — as well as the ongoing effect of the outbreak of the coronavirus on the global economy — would potentially delay the RBA’s decision to reduce the cash rate.

However, economists and analysts still anticipate that the RBA could make further cuts to the cash rate in the coming months, following on from reductions in June, July and October last year.

According to Finder.com.au’s RBA Cash Rate Survey, 87 per cent of the market analysts and economists surveyed predicted the RBA would hold the cash rate at 0.75 per cent.

Meanwhile, those that anticipated the RBA’s decision cited weak wage growth and low inflation as catalysts for the move.

Besa Deda, chief economist at St George Bank predicted that the RBA would cut the official cash rate in its first meeting for 2020.

“In the absence of wage pressures, inflation remains well below target,” Ms Deda said.

“More stimulus is required to return growth to trend.”

Domain economist Trent Wiltshire also anticipated the cut, and stated that the RBA “needs to cut rates” in order to push down unemployment and get inflation to rise.

“A reasonably strong labour force report for December 2019 shouldn't be enough for the RBA to pause the rate cutting cycle,” Mr Wiltshire said.

AMP Capital chief economist Shane Oliver stated that while he would “lean towards” a rate cut in March, a “February cut would not be surprising”.

“With the economy a long way from the RBA’s full employment and inflation objectives, the bushfires likely to knock growth in the short term and the China coronavirus posing a new threat to global growth and tourist arrivals the RBA should be cutting rates at its February meeting,” Mr Oliver said.

[Related: RBA granted additional breathing space as inflation ticks up]