The RBA is playing the ‘waiting game’ because it thinks its rate cuts are working: economist
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The Reserve Bank of Australia yesterday left rates on hold, but the central bank believes the economy has “reached a gentle turning point”.
In other words, interest rate cuts were working, among other stimulus measures including tax cuts and infrastructure spend.
“After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point,” it said.
“The central scenario is for growth to pick up gradually to around 3 per cent in 2021.”
“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth.”
“The easing of monetary policy this year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range.”
The RBA did however note that wage growth continued to be weak and drought effects could have an impact as well.
The bank concluded by saying it was prepared to cut rates further if needed.
As late as last week, economists were predicting interest rates would be slashed further. Westpac, for example, predicted rates could be 0.25 per cent by June.
CommSec chief economist Craig James said it could be some months before the next interest rate move happened.
“Rates could still go lower but the Reserve Bank seems prepared to play the waiting game,” he said.
“The Reserve Bank has emphasised that the rate cuts are indeed working, suggesting it may allow more time before deciding the next rate move.”
“While rate cuts have caused confidence to weaken, the RBA is asking people to focus on the positives of lower rates, like higher home prices and a lower Aussie dollar.”