Will Australia Central Bank Chief Cut Interest Rates?
The markets and economists are divided on whether the central bank in Australia will become the first developed country to reduce interest rates. While some see that the odds of announcing the cut in the meeting to be held on Tuesday is high, others think that with the elections coming up the policymakers will postpone it till June.
There are a few reasons why some believe that the rate cuts are in offer. One of the reasons being cited is the fall in the yield to below 1.25% of the three year bond as there is a renewed threat of a trade war between China and the US escalating as the US President tweeted on Sunday that the trade talks were moving ‘too slowly’ and he was contemplating increasing tariff on $250 bn Chinese products. That statement has made the chances of a rate cut likely. It is less than 25 basis points under the RBA benchmark for the first time in 2.5 years. A leading economist Tom Kennedy who was part of the survey to find out if the rate cuts would happen or not said,
“It’s a close call, The deterioration in core inflation, in our view, warrants a more immediate policy response.”
Things to consider for the RBI Chief
Philip Lowe has his task cut out as he was till February saying that there will be no rate cuts, but with most of the developed countries seeing a slowdown last year, the Chief may have to reverse his decision. Also, there are factors like the election which holds the policymakers with all parties promising cash rebates and tax cuts to boost the personal finances. The other problem that Lowe is facing is the contradictory employment data; the unemployment rate is at low of 5%, and in the past few years, the employment growth is good, but the outlook remains weak. That will be likely to have an effect on the GDP and the inflation forecasts which is due on Friday.
Lowe also is a believer of monetary stimulus which he points out increases the cash in the pockets of people, and that gets adjusted with cash rate as most people have mortgages which in turn helps the Aussie dollar. But as of now, the officials in the Reserve Bank Of Australia have avoided being in the limelight in wake of the election campaign as they opt for a wait and watch approach before making any changes to the economy.