On Tuesday, the RBA cut Australia’s cash rate to an all-time record low of 1.5%. Also affected by the decision are retirees whose savings accounts had been diminished by the 12 rate cuts since 2011.
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Instead of passing on the central bank’s interest-rate reduction on Tuesday, Commonwealth Bank, ANZ, Westpac and NAB said they would offer higher payouts on some term deposits.
As noted, despite the RBA interest rate action and the pessimistic economic data, AUD/USD surged early on Tuesday due to the expected rate cut having been largely priced-in, as well as substantial continuing weakness in the US dollar.
“Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years”.
“The annual trend of growth in Sydney has more than halved over the past 12 months, falling from 18.4% in July previous year to 9.1% over the past twelve months”, he said.
“Growth in lending for housing purposes has slowed a little this year”, the Bank said.
Though this month’s move by the RBA did result in some rate cuts by lenders, Kolenda believes the market is moving to a position where the RBA’s monthly decisions are increasingly irrelevant.
The 25 basis point cut to 1.5 percent means the Reserve Bank of Australia has slashed rates by 300 basis points since November 2011 to support the economy as it transitions towards non-resources growth after a mining investment boom.
The Reserve Bank has consistently expressed concern about the financial stability risk of the soaring Auckland housing market.
The pound rose 0.2 per cent to US$1.3129, following a 1.6 per cent drop Thursday after the Bank of England cut interest rates for the first time since 2009 and said it would buy corporate bonds to combat sluggish growth.
Australia’s central government however are unlikely to come to the table as they undertake much need budget reform to curb growing deficits. He continued “Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend”.
CoreLogic head of research Tim Lawless said the RBA was probably spurred along by a slowdown in dwelling value growth.
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“It’s also crucial that we begin to see some upwards pressure on inflation, with the latest Consumer Price Index (CPI) announced last week indicating growth of just one percent across the board, but much less for most retail categories”.
