RBA holds cash rate, but experts say a cut is ‘inevitable’

The RBA has kept the official cash rate on hold for its April meeting, but experts agree a cut now looks “inevitable”.

The Reserve Bank has kept the official cash rate at a record low of 1.5 per cent but a widely expected cut this year “looks inevitable”, experts say.

This afternoon’s decision at the April board meeting, coming as the housing market continues to slide, extends Australia’s longest ever period without a change to 32 months.

RBA leaves cash rate on hold as expected in April. The cash rate has now been on hold at 1.5% for 32 months #ausbiz #ausecon pic.twitter.com/wNey54cShK

— CommSec (@CommSec) April 2, 2019

RBA governor Philip Lowe said the soft GDP growth of just 0.2 per cent for the December quarter paints a “softer picture of the economy” than the low unemployment figures.

“Growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets,” he said in his statement.

He said high levels of spending on public infrastructure and an upswing in private investment has offset the impact to farming output.

“The low level of interest rates is continuing to support the Australian economy,” Dr Lowe said.

“Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”

But those weak GDP figures followed by lower than expected jobs growth means the slight possibility of a rate increase has been taken off the table completely, Canstar group executive of financial services Steve Mickenbecker said.

“What a difference a month makes,” he said.

“A lower cash rate looks inevitable. Though for now, the RBA could be keeping its powder dry to leave room to move if we start to see even more disturbing GDP and jobs numbers, and property prices in coming quarterly results.”

He said lenders are now factoring in cuts, reporting 274 fixed rate cuts this calendar year.

CoreLogic head of research Tim Lawless said the continued decline in the housing market is eroding household wealth and is adding further strain on consumer spending.

“Also, with economic growth losing momentum, as well as inflation and wages growth remaining below expectations, there are plenty of reasons why the RBA might have considered a cut to the cash rate today,” he said.

“The consensus from financial markets remains that interest rates will be cut later this year.”

Mr Lawless said the RBA will reveal more details in the coming months which he predicts will reveal more guidance of a cut before Christmas.

“Chances are we will see some downwards revisions to the RBA’s forecasts for economic growth and inflation which could set the scene for lower rates over the second half of the year,” he said.

With expectations of a slashing of the rate now a matter of when and not if, Mr Mickenbecker said it will then be a question of how much of the cut will be passed on by the banks and will it be enough to make a material difference.

“The most likely answers are not all of it and there will be a long lag before any rate cuts work through the economy,” he said.

The RBA last cut the cash rate to its record low of 1.5 per cent in August 2016, after an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.

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Originally published as RBA holds cash rate, but experts say a cut is ‘inevitable’