Australian home borrowers could soon get a rate cut as the Reserve Bank hinted that relief was on the way amid financial market concerns about a US recession.
The cash rate was held unchanged at a 12-year high of 4.35 percent on Tuesday, but Governor Michele Bullock has strongly hinted that the next move will likely be easing.
“The momentum in economic activity has been weak, as evidenced by slow GDP growth, a rise in the unemployment rate and reports that many businesses are under pressure,” the Reserve Bank said.
This is a dramatic change from June, when Ms Bullock revealed the board had considered a rate hike but not a rate cut, and the latest accompanying statement removed the phrase from the previous meeting about the RBA “not ruling out or introducing anything”.
Instead, the RBA is now focusing on slow growth in gross domestic product, or GDP.
The Reserve Bank said developments abroad were now more likely to influence its next rate decision, following its latest two-day meeting.
“The board will rely on data and evolving risk assessments to guide its decisions,” he said.
‘In doing so, it will continue to pay close attention to 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 as the Reserve Bank hinted that relief was on the way amid financial market concerns about a US recession.
Financial markets now expect the Reserve Bank to cut rates at the end of 2024, even though inflation in the year to June rose to 3.8 percent, putting it further above the Reserve Bank’s target of 2 to 3 percent.
Fears of a US recession caused Australia’s stock market to lose more than $100 billion on Friday and Monday, the worst two-day drop since the start of the pandemic in March 2020.
The 30-day interbank futures market now forecasts rate cuts in November and December, marking 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, with rate cuts already taking place this year in the European Union, Canada and the United Kingdom.
Capital.com market analyst Kyle Rodda said the forward market was no longer expecting another rate hike in Australia, despite inflation still remaining high.
The cash rate was held unchanged at a 12-year high of 4.35 percent on Tuesday, but Governor Michele Bullock has strongly hinted that the next move will likely be easing.
“Nobody is really talking about rate hikes and there are international issues driving that, but there is also the fact that local inflation data is not as bad as previously thought,” he told Daily Mail Australia.
Mr Rodda said the removal of the reference from the June meeting to the RBA “not ruling anything out” suggested the Reserve Bank was now more likely to cut rates.
AMP chief economist Shane Oliver said the Reserve Bank risked triggering a recession in Australia if it took too long to start cutting rates.
“While the RBA still faces inflation that is too high, given the US experience it should now consider cutting interest rates as it now risks much higher unemployment and inflation falling below target,” he said.