Reserve Bank cuts interest rates to new record low

Making it three cuts in one year, the Reserve Bank announced on Tuesday it has slashed interest rates by 25 basis points to 0.75 per cent as it battles rising unemployment a lower-than-expected inflation rate.

“It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” Philip Lowe, the governor of the RBA, said in announcing the rate cut.

He emphasised that the RBA is prepared to ease monetary policy further to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

“The board took the decision to lower interest rates further today to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target,” Mr Lowe said.

“The economy still has spare capacity and lower interest rates will help make inroads into that. The board also took account of the forces leading to the trend to lower interest rates globally and the effects this trend is having on the Australian economy and inflation outcomes.”

The Australian economy expanded by 1.4 per cent over the year to the June quarter, which was a weaker-than-expected outcome. Inflation pressure has remained subdued and, according to RBA, this is likely to be the case for some time yet.

In both headline and underlying terms, inflation is expected to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021.

Regarding the housing market, Mr Lowe said that there are further signs of a turnaround in established housing markets, especially Sydney and Melbourne.

In contrast, new dwelling activity has weakened and growth in housing credit remains low, while demand for credit by investors is subdued and credit conditions, especially for small and medium-sized businesses, remain tight.