Three experts on the rate cut – Inflation as a spoiler? “No return to a world as we have known it”.
Interest rates cut
The Reserve Bank of Australia (RBA) cut the official interest rate by 25 basis points to 2.25 per cent on Tuesday, the first reduction since August 2016.
The decision was widely expected by economists, who had been betting on a rate cut for months as the economy slowed and inflation remained below the RBA’s target of 2-3 per cent.
Experts’ Opinions
Three experts shared their views on the rate cut and its potential impact on the economy.
Saul Eslake, independent economist:
The RBA has finally done what the market has been expecting for months. The question now is whether this will be enough to stimulate the economy and lift inflation back to the RBA’s target.
Shane Oliver, AMP Capital chief economist:
The rate cut is a welcome move that should help to support the economy and lift inflation. However, it is important to remember that interest rates are still very low by historical standards and that there is still a lot of uncertainty in the global economy.
Michael Blythe, Commonwealth Bank chief economist:
The rate cut is a sign that the RBA is concerned about the economy and is willing to take action to support it. However, we do not expect the rate cut to have a significant impact on inflation. We believe that inflation will remain below the RBA’s target for some time.
Inflation as a spoiler?
One of the key risks to the RBA’s rate cut is inflation. If inflation remains below the RBA’s target, the central bank may be forced to cut rates again in the future.
According to the latest inflation data, consumer prices rose by 1.9 per cent in the year to March, which is below the RBA’s target of 2-3 per cent.
There are a number of factors that are contributing to low inflation, including weak wages growth, subdued consumer demand and global disinflation.
The RBA has said that it is prepared to cut rates again if inflation does not pick up. However, the central bank is also aware that cutting rates too aggressively could lead to financial stability risks, such as a housing bubble.
No return to a world as we have known it
The RBA’s rate cut is a sign that the global economy is facing a number of challenges. The trade war between the US and China, the Brexit uncertainty and the slowdown in the Chinese economy are all weighing on global growth.
In this environment, it is unlikely that Australia will return to the strong economic growth that we have seen in the past. The RBA’s rate cut is a necessary step to support the economy but it is not a magic bullet.
Kind regards E. Thompson
