Australian home borrowers could soon get a rate cut after the Reserve Bank signalled relief is on the way as financial markets worry about a US recession.
The cash rate remained unchanged at 4.35 percent on Tuesday, the highest level in 12 years, but Gov. Michele Bullock has strongly hinted at a possible easing.
“Momentum in economic activity is weak, as evidenced by sluggish GDP growth, a rise in the unemployment rate and reports that many businesses are under pressure,” the Reserve Bank said.
That is a dramatic change from June, when Ms Bullock revealed the board had considered a rate hike but not a rate cut. The latest accompanying statement deleted the sentence from the previous meeting that the RBA was “not ruling anything in or out yet”.
Instead, the RBA is now focusing on slow gross domestic product (GDP) growth.
The Reserve Bank said developments overseas were now more likely to influence its next rate decision, following its latest two-day meeting.
“The board will base its decisions on the data and the evolving risk assessment,” the report said.
‘In doing so, the Council will continue to closely monitor developments in the global economy and financial markets, trends in domestic demand and the outlook for inflation and the labour market.’
Australian home borrowers could soon get a rate cut after the Reserve Bank suggested relief is on the way as financial markets worry about a US recession
Financial markets now expect the Reserve Bank to cut rates by the end of 2024, despite inflation rising slightly to 3.8 per cent in the year to June, further above the Reserve Bank’s target of 2-3 per cent.
Fears of a US recession saw Australian stock markets wiped off more than $100 billion on Friday and Monday, the biggest two-day drop since the pandemic began in March 2020.
The 30-day interbank futures market is now predicting rate cuts in November and December, the first consecutive rate cuts since the pandemic hit in early 2020.
The US Federal Reserve is now widely expected to cut interest rates three times in 2024. This year, interest rate cuts have already been implemented in the European Union, Canada and the United Kingdom.
According to Kyle Rodda, market analyst at Capital.com, the futures market no longer expects another rate hike in Australia, despite inflation still being high.
The cash rate remained at 4.35 percent on Tuesday, the highest level in 12 years, but Governor Michele Bullock has strongly suggested the next step is likely to be an easing
“Nobody is really talking about rate hikes anymore and that’s because of international issues, but there’s also the fact that local inflation numbers are not as bad as previously thought,” he told Daily Mail Australia.
Mr Rodda said the removal of the June meeting reference to the RBA “not yet making any statements” suggests the Reserve Bank is now more likely to cut rates.
AMP chief economist Shane Oliver said there was a risk the Reserve Bank could trigger a recession in Australia if it took too long to cut rates.
“While the RBA is still struggling with too high inflation, given the US experience, it should now consider cutting rates, as there is now a risk that unemployment will become much higher and inflation will fall short of its target,” he said.