Interest rates cut to record low

by admin on August 30th, 2019

filed under 苏州半永久

(Transcript from SBS World News Radio)

As the Reserve Bank of Australia prepared to announce whether it would move to cut interest rates today, economists were suggesting it was a 50-50 proposition.


Plenty of reason to do it, plenty of reason not to.

But when it, indeed, happened, it still packed a surprise for some.

Ron Sutton takes a look why.

(Click on the audio tab above to hear the full report)

On the one hand, there was an argument for cutting the interest rate, essentially that, for the sake of economic growth and jobs, it was time to make a move.

On the other hand, there was an argument for doing nothing, that the weaker Australian dollar and the collapse in the world oil price were enough to spur the economy.

The Reserve Bank of Australia has decided on the former, dropping the cash rate for the first time in a year and a half, from 2.5 per cent to a record low 2.25.

It was, says University of Sydney economist Dr Mike Rafferty, a surprising act of activism by a Reserve Bank not known for such things.

“We’re seeing this across the world, and this is really interesting. A lot of central banks across the world are now being quite activist about rates of economic growth. So it’s a very interesting time in central banking.”

Canada’s central bank surprised economists there by reducing interest rates last month.

And the European Central Bank announced a money printing program of more than a trillion euro.

In Australia, Reserve Bank governor Glenn Stevens says the available information suggests the country’s economic growth is continuing at what he calls a “below trend” pace.

And he says, in a statement released by the Bank, domestic demand growth, overall, is quite weak.

“The board judged that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.”

Treasurer Joe Hockey has welcomed that thinking.

“I have no doubt that this cut in interest rates will help to lift business confidence and consumer confidence, and that means more jobs for Australians. We obviously live in a low interest world. The majority of our trading partners, apart from China, have virtually zero interest rates. So the Reserve Bank does have more room to move.”

Mike Rafferty, from the University of Sydney, brings up that same point and says, indeed, he expects a second rate cut this year.

And Dr Rafferty’s guess is, since this first move came earlier than many economists expected, the second move may not be far behind.

“The trouble with the interest rates is they have a time lag. They take time to sort of impact. So it really means that this rate cut really won’t have a significant impact for several months. And it’s likely, in that situation, that the Reserve Bank’s probably not going to wait that several months to see whether this one works. They may even be tempted to go again. So, it’s interesting times, again, as I said. This is, in some ways, uncharted waters for central banking, not just in Australia but internationally.”

Some economists had voiced concern a rate cut could inflate already high house prices, and Dr Rafferty says Australia saw a couple of years ago how fast that can happen.

But Joe Hockey says an International Monetary Fund report due out within days will show, globally, economic obstacles remain a concern.

And, back home, he says he expects the banks to pass on the rate cut immediately — and not just for housing loans.ho

“I also expect this to be passed through, particularly, for small business owners and to be passed through for everyone that has a credit card. We expect this to cut through right across the spectrum of credit.”





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