Reserve Bank makes Budget Day rate cut decision

·2-min read
Top: RBA banner; left: Treasurer Josh Frydenberg and PM Scott Morrison; right: RBA governor Philip Lowe.
Some economists expected the RBA to cut the official interest rate in the month of October. (Source: Getty)

The Reserve Bank of Australia has decided to keep the official cash rate at 0.25 per cent, despite predictions from some economists that it would slash rates to 0.1 per cent on the same day as the 2020-21 Federal Budget.

“The Board is committed to do what it can to support jobs, incomes and businesses in Australia,” said the RBA governor Philip Lowe in his monthly statement.

The high rate of unemployment is being addressed as an “important national priority,” he added.

“It will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.

“The Board continues to consider how additional monetary easing could support jobs as the economy opens up further.”

The Reserve Bank expects “both fiscal and monetary support” will be needed “for some time given the outlook for the economy and the prospect of high unemployment”, said Lowe.

‘Cut’ decision expected by some

Many pundits expected that the central bank would further ease monetary policy in order to present a united “Team Australia” front in tandem with the Federal Government to support the economy.

But Metropole Property Strategists CEO Michael Yardney said the RBA was holding out for the budget papers to see what policies would be announced.

“While there is some temptation for the RBA to lower interest rates a little, I think I will wait to see what fiscal measures will be introduced in the budget,” he said.

Equity Economics public sector economist Angela Jackson said while there was some room for the RBA to cut further, the focus was on fiscal, not monetary, policy.

“Such a decrease is unlikely to have a meaningful impact on growth at this point and would limit any future expansionary fire power,” said Jackson.

Westpac chief economist Bill Evans had initially predicted a budget day rate cut, but later revised this to 3 November.

“Westpac expects the RBA to announce another round of policy easing – likely in November – lowering interest rates (including trimming the cash rate and the 3 year bond target to 0.1 per cent),” wrote Westpac Institutional Bank in a note released yesterday.

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