As was widely predicted, the Reserve Bank left interest rates on hold today, for the second consecutive month.
This tallied with the expectations of most economists (the market had attached an implied probability of only 8% to the prospect of change), as well as the signals that were given out by the RBA in the lead-up to the announcement which indicated a desire to wait and assess before cutting rates further.
We do expect the RBA to cut rates in February and again in March next year, bringing the cash rate to a record low of 0.25%. After that, they might consider a program of quantitative easing.
The rationale for rate cuts early in 2020 appears clear at this point. Growth remains very weak, and were it not for government spending, trade and inventory it’s likely that the economy would be stalling or even going backwards.
We’ve witnessed some very weak numbers recently for indicators such as retail sales, housing-related activity and business investment. Inflation is running well below target and wages growth is very weak.
All of those factors point to further easing ahead, notwithstanding the decision today to leave interest rates on hold.
We see cuts in February and March taking the cash rate down to 0.25% after which quantitative easing will be considered.
Subscribe below to receive my latest articlesDr Shane Oliver, Head of Investment Strategy & Chief Economist
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.