RBA cut Cash Rate to 2.25%. Just shows how much we know!

Just a few days ago we posted explaining why we thought the RBA would not be cutting the Cash Rate today (you can read it here), but we have been proven sadly wrong with the RBA cutting 25bps from the Cash Rate to 2.25% at today’s Board meeting. Clearly Terry McCrann’s credibility, unlike ours, will be taking a sharp spike upwards.

In the rate decision (available in full here) the Bank note that “growth is continuing at a below-trend pace, with domestic demand growth overall quite weak” and that “(t)he economy is likely to be operating with a degree of spare capacity for some time yet.” The Board also note that, although the A$ has weakened against a rising US$ in recent months that the Aussie has strengthened “less so against a basket of currencies.” and that, “It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.

The final paragraph of the announcement (so often studied closely for signs of what might happen next) gives no real clues as to whether this is the first of a series of cuts, or if this is all there is. “For the past year and a half, the cash rate has been stable, as the Board has taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad. At today’s meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.

We remain rather surprised by the decision and will wait to see in coming months whether our rather more sanguine outlook on the Aussie economy proves to be reasonable. The forex markets have sold the A$ off by just over one US cent since the cut, thereby helping, at least in part, with the forex revaluing the Bank are wishing for.

4 replies
  1. Mark Beath
    Mark Beath says:

    Well you obviously should have know better than to challenge Terry McCrann when he sounds supremely confident on the issue! Perhaps the worst aspect is actually an apparent return by the RBA to signalling policy changes through selected journalists who in this case is also a supreme climate denialist. I thought we had moved on from that. Perhaps the key RBA personnel were all basking at the beach so when the call came as to who was going to signal the policy change they decided to just throw it back to Terry.

    • Pete Faulkner
      Pete Faulkner says:

      But he always sounds supremely confident! Or it could just be that he got lucky; it was only a 50:50 shout anyway…it was either him or me!


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