Just one month since the RBA cut rates for the first time in nearly three years, they’ve done it again. The cash rate now sits at a record low of 1.00%.
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.
Why Did They Cut?
According to RBA Governor Philip Lowe, rates were cut by 25 basis points to “support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.”
While the outlook for the global economy was described as “reasonable”, several risks were mentioned in Mr Lowe’s statement, including the trade war and technology disputes.
In the March quarter of 2019, inflation in Australia was reportedly below trend at 1.8%. The RBA says inflation looks subdued but is expected to pick up in June from increased petrol prices. The RBA still expects inflation of around 2% in 2020, increasing slightly in the following years.
Is This The Last Cut?
The statement from Mr Lowe says that the RBA believes recent labour market data suggests that the Australian economy can sustain lower rates of unemployment and underemployment. There is also mention of the recent house price rises in Sydney and Melbourne.
All things considered, there is nothing in the RBA statement that would suggest another cut is immediately on the cards, but some economists are still predicting further cuts later this year.
All of the big banks fell following the rate cut announcement, with Australia and New Zealand Banking Group (ASX: ANZ) shares down 1.45%, Commonwealth Bank of Australia (ASX: CBA) shares down 1.54%, National Australia Bank Ltd (ASX: NAB) shares down 1.16% and Westpac Banking Corp (ASX: WBC) shares down 1.55%.
Where Can Savers Go?
With record low interest rates, falling bond yields and uncertainty in the housing market, savers may be wondering where they can stick their cash. Dividend shares could be an option for income, and there are plenty of shares offering yields above 5% right now like Super Retail Group Ltd (ASX: SUL).
For three more dividend ideas, check out the companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
