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RBA cuts again to take cash rate to 1%

The Reserve Bank of Australia has cut the cash rate to a fresh record low of 1.0 per cent, reducing the cost of borrowing for two months in a row for the first time since 2012.

The market had largely priced in a second straight 0.25 percentage point cut after RBA Governor Philip Lowe suggested the June reduction would not be enough on its own to boost economic growth.

The last cut came a day before the release of another disappointing quarterly GDP result and was the first move in any direction since August 2016.

Dr Lowe on Tuesday noted the impact on Australia of US-the China trade tariff disputes.

“The uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside,” Dr Lowe said.

Dr Lowe last month denied June’s decision to cut was a response to a deteriorating economic outlook since the RBA’s May meeting, but also noted that a 5.2 per cent unemployment rate and stubbornly low GDP growth indicate that few inroads are being made into the economy’s spare capacity.

Figures out last month showed Australia’s economy grew by an underwhelming 0.4 per cent during the March quarter as household spending weakened and the property construction downturn rolled on.

“This easing of monetary policy will support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” Dr Lowe said.

Lenders across the market trimmed mortgage rates after the RBA’s last move and are likely to do so again, although only two of the four big banks passed on the full June rate cut to customers.

Product comparison site Canstar says banks have, since 2011, passed on only 50 per cent of rate cuts in full.

But a lower cash rate also means a lower return for savers, with interest rates barely keeping pace with inflation.

The Aussie dollar immediately dipped from 69.79 US cents to 69.70 US cents on the announcement before climbing back to 69.81 US cents by 1435 AEST.

Source: AAP

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Loren Webb

Loren Webb

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