Australian central bank governor says future rate cut is possible

In his first media address in more than twenty years, Reserve Bank governor Phillip Lowe says a rate cut is a possibility

RBA speech Source: Bloomberg

Philip Lowe told the National Press Club in Sydney on Wednesday, that the chance of the rate cut is more likely than it used to be, changing the RBA’s tone slightly.

'Looking forward there are scenario where the outlook in the cash rate is up and there are scenarios were its down.' Lowe said.

He said they will be monitoring developments in the labour market closely.

Lowe’s speech indicated it’s equally possible the next move in the interest rate would be up if more Australians found jobs and their wages rose.

‘Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today the probabilities appear to be more evenly balanced.’ Lowe said. If inflation lifts, then Lowe indicated interest rates would lift at some point.

Lowe’s speech comes after the central bank announced on Tuesday it would keep the cash rate at a record low of 1.5%, marking its 30th month unchanged.

The rate was last cut in August 2016 and has not risen since November 2010.

Housing market

Lowe said the strength of the Australian housing market and how much people were spending would become the greatest source of uncertainty in the coming years.

Lowe was not certain what effect the housing correction would have on household consumption.

‘What we are seeing looks to be manageable adjustment in the housing markets of Sydney and Melbourne,’ he said.

Australian dollar falls upon the speech

AUD/USD has been volatile over the past 24 hours, shifting directly after Lowe’s speech.

After the RBA’s upbeat statement yesterday it rallied slightly, then changed again after Lowe’s switch in tone.

Investors were cautious, sending the AUD/USD 1% lower on Wednesday.

AUD/USD hit a low of 0.7160 directly after Lowe's speech.


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