Australian interest rates: RBA reveals 50-50 chance of cash rate cut

After a year in which the markets expected interest rates to rise, the Reserve Bank of Australia’s governor has revealed the official cash rate now has a 50-50 chance of being slashed to a record low.

Australia now has a 50-50 chance of seeing the official cash rate slashed from an already record low as house prices fall in Sydney and Melbourne.

Reserve Bank of Australia governor Philip Lowe today revealed the chances of a cash rate hike or cut were now “evenly balanced”.

It’s a shift from last year when rates were expected to rise and could see the official cash rate plunge below 1.5 per cent for the first time ever.

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Reserve Bank of Australia governor Philip Lowe today revealed the chances of a cash rate hike or cut were now “evenly balanced”. Picture: Kym Smith

Dr Lowe’s prediction comes despite borrowers copping out-of-cycle rate hikes in recent weeks as lenders respond to rising interest rates in overseas markets.

ME Bank and ING both increased interest rates last week, following NAB’s rate hike the week before.

“If Australians are finding jobs and their wages are rising more quickly it is reasonable to expect that inflation will gradually lift and it will be appropriate to lift interest rates at some point,” Dr Lowe said in a National Press Club speech in Sydney today.

“On the other hand, it is possible that the economy is softer than we expect and that income and consumption growth disappoint.

“In the event of a sustained increase in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point.

“We have the flexibility to do this if needed.”

The RBA will monitor Australia’s economic outlook carefully, but does not see a reason to change the cash rate in the near future. Picture: AAP Image/Joel Carrett

Dr Lowe noted the RBA board would monitor Australia’s economic outlook carefully.

“It does not see a strong case for a near-term change in the cash rate. We are in the position of being able to maintain the current stimulatory policy setting while we assess the shifts in the global economy and the changes in household spending,” he said.

The rate has remained at a record low of 1.5 per cent since August 2016 and hasn’t risen since November 2010.

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The banking royal commission report was released yesterday with 76 key recommendations. Picture: AFP/ Peter Parks

In his first comments since the banking Royal Commission final report was handed down on Monday, Dr Lowe said he welcomed Kenneth Hayne’s recommendations and the government’s response.

“It is not revolution, which we didn’t need. We needed sensible ... pragmatic reform and that’s what we’ve got,” he said.

“I really hope and expect that the banks learn the lessons.”

Dr Lowe refused to comment on whether National Australia Bank chairman Ken Henry and chief executive Andrew Thorburn should resign after being singled out for criticism by Mr Hayne.

But he called for bank leaders to take responsibility for the misconduct rife in the sector.

“There has to be accountability and it starts at the top,” he said.

He noted there had been a “needed tightening of credit standards in Australia” in recent times and there were concerns the pendulum “may have swung too far the other way”.

But he said the commission’s recommendations on credit provision “should help remove some of the uncertainty”.

Dr Lowe also noted that housing price falls in Sydney and Melbourne were currently a “manageable adjustment” that was not expected to derail economic growth.

“We recognise that this correction will have an effect on parts of our economy but our economy should be able to handle this and it will put the housing market on a more sustainable footing.,” he said.

Labor has accused the government of either rejecting or not fulling embracing 14 of Hayne’s 76 recommendations, including claiming it has “unreasonably delayed” the removal of grandfathered conflicted commissions for financial advice by pushing it back to 2021.

Labor also claims the government has rejected calls for lenders to be banned from paying commissions to mortgage brokers by saying it will consider the reform it in three years’ time.

Dr Lowe dismissed Labor’s concerns, saying the government was “right to be cautious” about accepting the full recommendation and making the borrower pay.

“There are legitimate competition issues and I think it is worth taking the time to work through those competition issues,” he said.

Originally published as Australian interest rates: RBA reveals 50-50 chance of cash rate cut