The RBA has officially cut the official cash rate by 0.25% to 1.25% after months of speculation around a cut. This cut is the first change to the cash rate since August 2016.
AMP Capital's Dr Shane Oliver said this would not be the only rate cut of the year, with an expectation that a second cash rate would follow.
“Beyond today's cut we expect the RBA to cut by another 0.25% in August and we now expect the RBA to take the cash rate down to 0.5% by mid next year,” he said. Mr Oliver said that the RBA had a problem as a slowing jobs market and economy pointed to a further rise in unemployment when the RBA needed it lower.
“With a continuing run of softer than expected economic data, we doubt that just two cuts will be enough to get unemployment below 4.5% and now expect that the RBA will have to take the cash rate below 1%, which will see an increasing debate about whether it should use quantitative easing.
Franklin Templeton Investment’s director of fixed income Andrew Canobi said that the RBA last cut rates twice when confronted with a similar economic outlook.
“Back in 2016 when the RBA was confronted with a very soft CPI result and they responded very quickly, cutting twice in that year. Since then we’ve been monitoring underlying drivers of inflation in the economy and, really, suggesting that those pressures are still in play. The inflation print we got just over a week ago, which is the weakest in three years, sealed the case that had already been brewing,” he said.
Treasurer Josh Frydenberg warned the big banks prior to the cut that the government expected them to pass on in full any rate cut from the Reserve Bank.
“With the economy facing significant headwinds domestically and internationally, it is important that the banks are continuing to keep their lending book open and that they pass on in full to the public any benefits of reduced funding costs," Mr Frydenberg said.
At the time of writing, ANZ had passed on only 0.18% of the 0.25% rate cut, bitterly disappointing Mr Frydenberg at today's press conference.