Tuesday 4 June 2019: The RBA cut its official interest rate today to a record low of 1.25%. This is the first change in interest rates for almost 3 years.
Since the start of 2019 it has become clear that the Australian economy has not been as strong as earlier predicted. Data has confirmed that Australia’s economic growth slowed sharply in the second half of 2018, and also that inflation has fallen further below the RBA’s target of between 2% and 3%.
The labour market has remained resilient; however, the ‘under-employment’ rate remains relatively high. The Reserve Bank still wants to boost job growth, lower unemployment and put pressure on wage increases. That would help push inflation back up to the target 2-3% band.
The RBA will be hoping that indebted households will spend more as their cash flow improves, and that Australian exporters will benefit from a lower dollar. That would help strengthen both the economy and inflation.
There are some signs of bottoming out in the housing market, with price falls slowing and auction results improving. Most recently, major banks have reported a pick-up in mortgage enquiries.
Financial markets have priced in another 0.25% cut by October 2019, with a chance of further cuts to come. With that in mind it will be worthwhile to keep an eye on any changes to employment data over coming months.
If you would like to know how these interest rate changes may affect you and your personal circumstances, please contact John at Agility Wealth Partners on (02) 8277 4216 for an obligation-free appointment.