RBA announces latest cash rate decision
The Reserve Bank of Australia has announced its second cash rate decision for this year after cutting interest rates in February.
As widely expected, the RBA has decided to leave the cash rate target at 4.10 per cent following its latest board meeting. This follows the 25 basis point cut to interest rates it announced in February.
Geoffrey Kingston from Macquarie University Business School said while another rate is coming soon, it's not urgent at this stage and the RBA will want to keep a low profile during the election campaign.
"By the same token, February’s significant fall in full-time employment heralds downward pressure on inflation. Likewise, February’s inflation print was lower than expected," said Kingston.
AMP deputy chief executive Diana Mousina said while the Reserve Bank cut interest rates from 4.35 per cent to 4.1 per cent in February, the RBA's post meeting commentary and their updated forecasts are hawkish, suggesting that further rate cuts are not necessarily on the horizon.
"Australian economic data since the last RBA meeting has mostly been positive, with better consumer confidence readings, a flat unemployment rate, an improvement in the PMI and more good news on inflation," said Mousina.
She noted that financial markets still have 2.5 rate cuts priced in by December. AMP is expecting a a 0.25 per cent rate cut at the May and August meetings.
University of Sydney Associate Professor Stella Huangfu said while headline inflation has fallen to 2.4 per cent and trimmed mean inflation is at 2.7 per cent, both within the RBA's 2-3 per cent target band, the RBA still considers it to be a risk.
"The RBA has said it wants confidence that inflation will stay there sustainably. Some sticky services inflation may make them cautious about cutting too soon," said Huangfu.
Michael Yardney from Metropole Property Strategists said the RBA's decision to keep interest rates on hold was likely driven by the need to asses the lagging impact of previous rate changes on the economy.
"The bank will be keen to observe how the recent rate drop filters through various sectors, including housing, retail, and manufacturing, before making further adjustments," said Yardney.
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