RBA Interest Rate Unchanged as Pressure for a Cut Builds

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Once more, the RBA interest rate remains unchanged, but the pressure for a cut is building.

Prior to the announcement of the decision, of the 26 economists polled by Bloomberg, 14 believed that there would be a 25 basis point cut.

It was neck and neck between the two options before the RBA, with Australian cash rate futures putting the chance of rate cut at 47%.

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RBA thinks that household disposable income will pick up

The RBA is struggling to get inflation into the target range and it highlighted ‘domestic uncertainty’:

The central scenario is for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.

Markets responded poorly to the decision, as some investors may have banked on a rate cut.

After rising over the course of the day, the ASX 200 fell to the 6,290–6,300 range.

For reference, this is the crucial final paragraph of the decision:

The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.

When will a rate cut occur?

As the RBA notes, the labour market will be the trigger for a policy change.

The ANZ jobs advertisement data can be seen below:

RBA Interest Rate

Source: tradingeconomics.com

The trend here points to a potential deterioration in the jobs market.

So if this occurs, the RBA will potentially cut the rate over the next few months, as the job ads data lags unemployment levels.

All of this is part of the cycle.

Governments looking to juice the system amid a real-estate downturn is something that occurs like clock-work.

So while there may be modest gains to be had on blue-chips in a six-month range — it could be wise to start looking further afield.

Greg Canavan has a close look at the gold opportunity here, our lead editor Härje Ronngard looks at small-cap graphene plays here, and Matt Hibbard looks at dividend investments here.

Regards,

Lachlann Tierney,

For Money Morning

 

About Lachlann Tierney

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest…

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