New record low of 1 per cent
The Reserve Bank has cut the official cash rate for the second month in a row to a fresh record low of 1 per cent as it desperately tries to pump some juice into Australia’s stalling economy.
The 25 basis point cut was widely expected by economists and telegraphed by RBA Governor Philip Lowe, who had warned June’s cut — the first move in almost three years — may not be enough to move the needle on weak economic growth and a weakening jobs market.
The unemployment rate increased to 5.2 per cent in April and Mr Lowe has flagged a target of 4.5 per cent. GDP growth remains stubbornly low at 0.4 per cent, wages growth is sluggish, inflation is well below target and retail sales are struggling.
“It would be unrealistic to expect that lowering interest rates by one quarter of a percentage point will materially shift the path we look to be on,” Mr Lowe told a lunch in Adelaide last month. “It is not unrealistic to expect a further reduction in the cash rate.”
In his statement today, Mr Lowe confirmed the decision would “support employment growth and provide greater confidence that inflation will be consistent with the medium-term target”.
“The outlook for the global economy remains reasonable,” he said. “However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside.”
The cut, which comes a day after house price data showed the first monthly increases in Sydney and Melbourne since 2017, was “not about the housing market”, according to CoreLogic senior research analyst Cameron Kusher.
“It’s about the weakening jobs market, weak economic growth and other factors that have been deteriorating for some time,” said Mr Kusher, adding the effect on house prices “all depends on how much gets passed on by the lenders”.