The Reserve Bank of Australia Governor Philip Lowe has given a clearer indication on whether there will be an interest rate cut for June, which has been highly discussed. Will the RBA cut rates in June?
The Reserve Bank of Australia is Australia’s central bank. One of its biggest roles is to decide Australia’s interest rate, taking into account economic conditions including unemployment, inflation and the housing market. The RBA interest rate has a ripple effect across the whole economy.
RBA Governor Insights On June Interest Rate Decision
RBA Governor Philip Lowe gave a speech at the Economic Society of Australia in Brisbane today, with parts of the speech signalling that interest rate cuts could be on the cards for June, which has been highly discussed by economists.
RBA Governor Philip Lowe said that the Reserve Bank Board discussed what happens if there is no improvement to the unemployment rate, which is currently around 5%.
The RBA Board determined that if unemployment remained at around 5% that inflation was likely to remain low relative to the target and that a decrease in the interest rate would be appropriate.
Towards the end of his speech, RBA Governor Philip Lowe said: “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”
Although if the unemployment rate doesn’t decrease there are further options. Dr Lowe said that these options include further monetary easing with additional fiscal support, through spending on infrastructure and policies that support firms expanding, investing and employing people.
This could boost investor sentiment towards the banking sector. Reduced interest rates could increase the number of loans written by Commonwealth Bank of Australia (ASX:CBA) and Westpac Banking Group (ASX:WBC).
Reduced interest rates could also take the pressure off the big banks’ existing loan books. All of the big banks have seen a rise in mortgages that are in arrears by 90 days or more, Australia and New Zealand Banking Group‘s (ASX: ANZ) HY19 results were no exception.
However Dr Lowe did say: “It is possible that the current policy settings are sufficient to deliver lower unemployment.”
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