Some market analysts had predicted that the Reserve Bank of Australia might cut its back to-back interest rate. They expect more cuts in the future. According to an industry observer, the bank had previously indicated that this rate cut would not be their last.
A 1% cash rate could send shivers down the spine for some — if this happened years ago, it would already be considered “emergency level”, UTS Business School professor Warren Hogan said in a think piece in The Australian Financial Review.
Low interest rates are likely to be more prevalent due to the slow growth rate and low inflation. Take a look at global markets performance.
“Australian interest rates are unusually low, and they look very similar to those in advanced economies around the world,” said Mr. They are unlikely to ever return to normal. “A Reserve Bank cash rates (currently 3%) seem high,” he said.
When deciding whether rates should be lowered or maintained, the RBA took inflation into consideration. For three consecutive years, the underlying inflation was less than the 2%-3% target range. This is due in part to slow wage growth.
Inflation is expected to rise to 2.2% by the end of the year according to the central bank. The rate will be reduced by 50 basis point to 1.1%
“The bank must monitor the economy for a period of time to determine if it’s thriving. Yesterday’s statement showed some signs that the housing sector is improving. Hogan stated that confidence in business increased after the federal election, and that there is less risk of US-China trade negotiations deteriorating.
Hogan said however that the RBA could be suggesting that further rates cuts are not likely as the market had predicted and that additional policies need to be implemented in order to boost the economy.
“The board noted that it ‘will continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy’. Hogan said that the phrase “if required” was not in Hogan’s previous statement. “After making a rapid, sharp adjustment to the stance on monetary policy, Hogan stated that the Reserve Bank should take a step back, observe the unfolding events, and then make their next move.”
Hogan thinks that the tax reform promise Hogan made before the federal elections is a great place where to begin.
“The tax relief provided to low- and moderate-income earners will be the economic stimulus.” Future tax cuts will be equally important, as will legislation. He said that consumers will be more confident in spending if future income tax rates are lower.
Hogan said that many Australians are facing difficulties with low wealth, slow income growth, and high levels of debt.
According to the Australian Bureau of Statistics mortgage debt continues growing faster than property value, while house prices dropped for the fifth consecutive month in March. The Your Mortgage report revealed that the housing crash has led to a rapid decline in household wealth per head, falling from $1500 down to $404,566.
Hogan stated that consumers can feel more confident about their finances if the future income tax burden is lower. This will enable them to spend more in the future.