RBA Faces Pressure for Further Rate Cuts Following Disappointing GDP Data
The Reserve Bank of Australia (RBA) is increasingly likely to consider further cuts to interest rates, with recent data revealing weaker than anticipated economic growth. The Australian economy expanded by only 0.2 per cent in the March quarter, a decline from 0.6 per cent in the preceding quarter.
According to the latest national accounts released by the Australian Bureau of Statistics (ABS), economic activity rose by a mere 1.3 per cent over the year to March, falling short of the RBA’s forecast of 1.8 per cent by the end of the June quarter. In a concerning trend, GDP per capita actually decreased by 0.2 per cent for the quarter and 0.4 per cent annually.
Changing Predictions for Rate Cuts
The dismal growth outlook has prompted some economists to move up their predictions for potential rate cuts. Diana Mousina, AMP’s deputy chief economist, has shifted her expectations, now anticipating a 0.25 per cent cut in July—in addition to cuts previously forecast for August, November, and February. According to her analysis, this would position the cash rate around 2.85 per cent once the rate cutting cycle concludes.
Stephen Wu, a senior economist at Commonwealth Bank, noted that while another rate reduction is expected in August, a July cut has become a viable option as the RBA considers the latest labour market and inflation data. He emphasised that today’s data has increased the likelihood of a July rate cut, with market pricing reflecting this growing expectation.
Ben Udy, lead economist at Oxford Economics Australia, highlighted that the RBA is likely to closely monitor further signals that the March quarter’s weakness persists into the June quarter, which could prompt an earlier cut.
Economists Support Immediate Action
Economists like Alex Joiner from IFM noted that the latest GDP figures bolster the argument for a July cut rather than delaying until August. Andrew Boak, chief economist at Goldman Sachs Australia, indicated that the RBA might implement three more cuts this year, with a strong rationale for a reduction in July given that inflation has returned to target levels.
In May, the RBA reduced the cash rate by 0.25 per cent, but Governor Michele Bullock indicated that a larger cut of 0.50 per cent had been contemplated. Economist Stephen Koukoulas argued that a dramatic cut is warranted, given the “pathetically weak” growth of just 0.2 per cent. He stressed the importance of lowering the cash rate to a neutral level—which he estimates is in the low 3 per cent range—due to the risks associated with protracted high rates.
A single additional cut of 0.25 per cent could see the average borrower’s repayments decrease by approximately $90, based on a $600,000 loan over 25 years.
Looking ahead, the RBA board is scheduled to convene on July 7 and 8 to deliberate on these matters. The outcomes of this meeting could have significant ramifications for the broader economy and households across Australia.
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