Most economists correctly forecasted that the RBA would reduce the cash rate by 50 points to 5.75 per cent today.
Governor Ian MacFarlane said around 10 o’clock this morning in his statement announcing the cuts, that the decision was based on four principal considerations.
“Recent data show that consumer price inflation remains low…labour cost increases remain moderate…economic conditions abroad have deteriorated noticeably since last year…domestic demand, which was always expected to slow, is now running at a rate below that of earlier years.”
MacFarlane says corporate balance sheets are in good shape, and while credit has declined, it still remains readily available and is in better shape than what can be observed in the US.
Economists responding to the annoncement say that the rate cuts were widely expected, and the accompanying statement shows that the RBA has shifted its focus away from inflation and directed it to the growth of the Australian economy. Many are predicting a further cut later in the year.
Macquarie Bank chief economist Richard Gibbs says the statement accompanying the interest cuts reveals that the RBA has pushed inflation to the backseat and is now concentrating on growth.
“I think they are keeping their options open, but we think that we can see another half per cent or so cut by mid year, taking the cash rate to 5.25 per cent by June,” he says.
RBC Dominion senior economist Su-Lin Ong says that the statement did not have the hint of panic that the US Federal Reserve statement did when it announced rate cuts in January.
“There’s nothing in the statement that has the Fed kind of urgency in the tone, so we think it’s consistent with a modest easing bias in policy,” she says.
