Reserve Bank cuts rate to 0.75%

 

Australia's official cash rate has fallen below 1.0 per cent for the first time in history.

At its October meeting on Tuesday, the Reserve Bank of Australia made the widely expected decision to drop the rate to 0.75 per cent - the third time it has wiped 25 basis points off since June.

And the cuts are expected to keep coming from Reserve Bank governor Philip Lowe, with another reduction predicted for the start of 2020.

"Interest rates are very low around the world and further monetary easing is widely expected, as central banks respond to the persistent downside risks to the global economy and subdued inflation," he said in his statement.

"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.

"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."

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Corelogic head of research Tim Lawless said the strong rebound in Sydney and Melbourne's house prices did little to sway the downwards trend from the central bank.

"A trend towards higher unemployment and a slowdown in jobs growth were likely the primary factors in the RBA's decision to cut rates to a new low, as well as concerns around persistently weak household spending, subdued wages growth and low inflation," he said.

"Lower interest rates together with a subtle loosening in credit policies and improved housing sentiment has seen national housing values recover 1.7 per cent of the 8.4 per cent peak to trough decline in value, with a substantially larger bounce in Sydney and Melbourne."

Mr Lawless says he expects the bounce in housing values to help kick the economy along as homeowners begin to feel wealthier and more confident.

"Stronger housing conditions should also support the residential construction sector where approvals dropped through the housing downturn," he said.

"Both household spending and residential construction activity have weighed on economic growth, so a turnaround in these sectors would be a welcome turn of events."

 

RBA boss Philip Lowe cuts rates to 0.75. Picture: AAP Image/Lukas Coch
RBA boss Philip Lowe cuts rates to 0.75. Picture: AAP Image/Lukas Coch

 

Per Capita research fellow Stephen Koukoulas told news.com.au the RBA is reacting to the soft economy and record low interest rates was a "sign that all is not well".

However, he stopped short of suggesting Australians should start panicking.

"As the Reserve Bank's been saying recently, there are a few bright spots in the economy," he said.

"We know that exports are doing well, we know that private sector business investment is picking up, and we know that infrastructure spending is still being rolled out.

"The concerns are housing construction and consumer spending - both very weak and until they change the economy will stay weak given how important they are.

"It's an injection of monetary policy stimulus when the economy hasn't been performing well."

Continue the conversation on Twitter @James_P_Hall or james.hall1@news.com.au


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