‘Goldilocks outcome’: RBA’s next move after rate cut
This is what experts are predicting after the RBA cut rates and what it means for mortgage holders across Australia.
Interest rates are likely to fall in November and could be reduced even further next year as the RBA moves to deliver a “Goldilocks outcome” in which inflation and unemployment are both low.
That’s what experts are predicting after the Reserve Bank of Australia on Tuesday cut by 0.25 per cent for the third time since February.
The big four lenders – ANZ, CBA, Westpac and NAB – all said they would pass on the reduction in full, lopping $110 a month off repayments of a $700,000 loan.
People looking to buy who had approval to borrow that much will now be able to get about $20,000 extra in their kitty.
However, for savers, the rate reduction will make it close to impossible to find a deposit rate paying 5 per cent.
The RBA is now widely tipped to cut again at its board meeting ending on Melbourne Cup Day, November 4.
By then it will have the next set of quarterly consumer price index data. It has cut at the monetary policy board meeting following each detailed CPI report so far this year.
The next CPI result is likely to confirm inflation is licked, argued Betashares chief economist David Bassanese – one of the few pundits who correctly predicted the RBA would hold fire in July.
“A rate cut on Melbourne Cup day is an odds-on favourite,” Mr Bassanese said.
“I then anticipate further rate cuts at the February and May policy meetings next year, taking the cash rate to … 2.85 per cent.”
If that plays out, a person with that $700,000 loan would be $444 a month better off than they are now.
The RBA released new economic forecasts on Tuesday which show it delivering low levels of inflation and unemployment into the foreseeable future.
“It’s a nice set of forecasts, isn’t it,” Ms Bullock said. “It’s conditioned on … a continual lowering in interest rates” – two or possibly three more times, she added.
NAB chief economist Sally Auld said “that really would be a bit of a Goldilocks outcome” in which the economy would neither be running too hot nor too cold. While it was consistent with NAB’s projections, Dr Auld cautioned that things rarely work out that way.
Significantly, the RBA reduced its forecast for economic growth after slashing its assumption about the rate of productivity improvement.
The usually unflappable Ms Bullock became frustrated with journalists for continually asking about the change to the assumption, even though the Albanese government is about to hold a summit aimed at coming up with ideas to lift productivity.
“So many questions about productivity,” Ms Bullock lamented. “The news here isn’t productivity. The news here is … this is our third decrease in interest rates.
“We’ve had 75 basis points (of reductions) now and our inflation is gradually returning sustainably to the target and the unemployment rate is remaining pretty low in a historical sense.
“That is the good news here.”
Ms Bullock said the change to the productivity assumption was only aimed at solving a “puzzle” for the RBA because it kept over-estimating economic growth. The revision wasn’t based on any new research.
Originally published as ‘Goldilocks outcome’: RBA’s next move after rate cut
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