RBA meeting: interest rates slashed to historic low of 0.75%

In a move that many were expecting, RBA Governor Philip Lowe today announced a 25 basis point cut to Australia’s official cash rate.

Today’s rate decision at a glance

RBA Governor Philip Lowe today announced a 25 basis point cut to interest rates, taking Australia’s official cash rate to a historic low of 0.75%.

Prior to today’s announcement, the official cash rate stood at 1.00%.

This move should come as little surprise to those watching the situation. Indeed, as IG’s market analyst Kyle Rodda wrote this morning, the RBA is:

‘Overwhelmingly expected to cut interest rates today to a new record-low of 0.75%, with market pricing giving that outcome an 80% implied probability.’

Today’s result was essentially a ‘done deal’ – with 20 out of the 26 surveyed economists tipping a rate cut prior to today’s announcement, noted Mr Rodda.

Key points from the RBA’s decision

According to the RBA, today’s 25 basis point cut aims to ‘support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target.’

Though Governor Lowe noted that Australia's economy grew slower in the June quarter than previously expected, he also pointed out that the:

‘Low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector should all support growth’ going forward.

As was true of the RBA’s last interest rate announcement, the Governor also touted the turnaround in Australia’s housing market as a key positive, though also noted that housing credit remains low.

Prior to today’s announcement, the business media speculated that the big four Australian banks would balk at passing on the full-rate cut to consumers.

Currently, members of the big four have yet to comment on such speculation.

Final thoughts: future rate cuts pending?

Finally, and potentially of most interest to investors and consumers were comments from Governor Lowe that:

‘The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy.’

In response to today's RBA decision, Shane Oliver, Head of Investor Strategy & Chief Economist at AMP Capital, tweeted that:

'We see more cuts in Nov & Feb taking cash rate to 0.25 which will be the bottom.'

It will be interesting to see how events unfold in the meantime.

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