RBA decision: Australian central bank to consider rate cut

The Reserve Bank of Australia (RBA) decided it will consider the case for lower interest rates at its June policy meeting

RBA Source: Bloomberg

On Tuesday, RBA Governor Philip Lowe said that the next move in rates would likely be down.

'A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,' Lowe said.

'Given this assessment, at our meeting in two weeks' time, we will consider the case for lower interest rates.'

Financial markets have priced in a 50-50 chance of a lower rat cut in June. If cut, it would be the first since August 2016.

The RBA expects employment growth to slow over time, with the country’s economy supporting an unemployment rate of below 5% without raising inflation concerns.

'Relying on just one type of policy has limitations, so each of these is worth thinking about. The Reserve Bank Board recognises that monetary policy has a role to play here,' said Lowe.

Australian dollar price

AUD/USD slid on Tuesday after the news. The Aussie dollar dropped off to $0.6883, from around $0.6910, and threatened to re-test the recent 19-week low of $0.6865. The lowest it’s been since 2016.

Lowe said the main reason for the shift in the country's economic momentum – growth braked to an annualised 0.8% in the December quarter – was a slowdown in household consumption.

Over the second half of 2018, consumer spending ticked up by just 0.75%, "an unusually soft outcome", he said.

Rates have been on hold since mid-2016, with disappointing data on economic growth, inflation and unemployment recently building a case for more stimulus.

Yields on three-year bonds are well under the cash rate at 1.21%, having hit all-time lows last week.

Bond futures rallied back toward record highs, with the three-year bond contract up 2.5 ticks at 98.800 after jumping from an early 98.730 low. The 10-year contract firmed 2 ticks to 98.3350.


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