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Via the Guardian
And that’s where we will leave the blog for today. The full report is coming up – with more updates and reaction.
- The Reserve Bank cut the cash rate to a historic low of 1%.
- The RBA governor, Philip Lowe, sounded an optimistic note, saying Australia’s growth was “on-trend” and job growth was strong.
- But low household spending was the big worry, due in part to low wages growth.
- The Australian dollar stayed static and the ASX 200 hovered near where it opened – despite a big spike when the cut was announced.
- Labor and the ACTU called on the government to act to increase wages.
- Experts are still predicting another cut later this year, and possibly one more at the start of 2020.
And Lowe will be making a speech in Darwin at 7.30pm AEST when he will provide more information. Thanks for reading.
Here’s analysis from Stephen Koukoulas:
Westpac’s market update is in, and it is bad news for bonds.
“AU bonds reacted slightly positively on the initial announcement but quickly gave up those gains to be largely unchanged,” the analyst Damien McColough says.
“Under Westpac’s forecast for RBA & Fed policy we have now reached the maximum inversion of AU cash versus the US (137.5bp). Should we be proved correct, the relentless AU bond outperformance that has been a feature of the past almost two years has probably run its course.”
And he says to keep an eye on the employment data, and the situation in Canberra.
“By stating that a further rate cut would be delivered only ‘if needed’, the RBA has sent a message that is less dovish than at the time of the June rate cut. That means that they (and the market) will be even more sensitive to the evolution of the data over coming weeks, especially as the statement implies that they have maintained their more positive outlook for the economy.
“We think that the market will be more reactive to any updates on fiscal policy, especially the passage through Parliament this week of the Government’s tax reforms.”
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Some more movement – the lowest variable rate available is now officially 2.89%.
This is from Reduce Home Loans, which RateCity said had previously offered the lowest variable rate (3.09%).
Three small lenders have moved and passed on the full cut – according to RateCity.
Aussie dollar static
The Aussie dollar has hardly moved in the wake of the RBA’s decision.
You’d normally expect lower rates to push the local currency down but the lack of reaction shows that the move was, as they say in the markets, already in the price. The Aussie stands at US69.78 at the moment.FacebookTwitter
- This is the first back-to-back rate cut since 2012.
- Australia now has the sixth lowest interest rate in the world.
Anthony Doyle from Fidelity International says this is only 0.25% above the UK, which is currently in a bad spot “bearing the brunt of uncertainty over its future trading status with Europe”.
He expects another cut by December. “The unemployment rate will be a key indicator,” he says. “In coming months, Governor Lowe and the RBA will likely continue to call on federal and state governments to support growth going forward through both fiscal easing and structural policies designed to support job growth.”
And as we cast into the future, Marcel Thieliant from Capital Economics is predicting more rate cuts.
He says it will fall to 0.5% by early 2020.
“We still expect the unemployment rate to climb to 5.5% by end-2020, which will keep a lid on underlying inflation,” he says. “The upshot is that we reiterate our forecast that the RBA will slash interest rates to 0.5% by early next year.”FacebookTwitter
How have the markets reacted?
The ASX 200 is currently at 6,648 points, about the same it was at the start of business.
But that’s a decrease on the middle of the day, when it was 6,667 before the announcement. There was a spike in the index immediately after the news – surging to 6,684 – but it has now come back down.
We’re still waiting to see which banks will move and cut their variable mortgage rates, and which won’t.
RateCity’s Sally Tindall says the new lowest rate on the market could be 2.84%.
But she is not expecting the big banks to pass a lot of the cut on. In fact, “a lot of variable rate customers might find they get short-changed” at the end of today.
“Call your bank and find out what they intend to do,” she says. “If you’re an owner-occupier paying down your debt, and you’re on a rate higher than 3.5% after this cut, you might not be getting value for money.”
The ACTU secretary, Sally McManus, says the government should act to boost wages – again picking up on Lowe’s comments about low wage growth.
“Low wage growth is holding our economy back,” McManus says.
“Working people have gone without fair pay rises for six years… People are digging into their savings if they even have any. Many have nothing left to spend and it’s causing our economy to break down.”
She says there are three things the government should do: reverse the penalty rate cut (which came into effect yesterday), give public sector workers a pay rise and commit to a living wage, one of Labor’s election platforms.
Labor: Cuts show government mismanagement
Labor’s shadow treasurer, Jim Chalmers, is first out of the blocks with his statement.
“If the Liberals were doing such a good job managing the economy, the Reserve Bank wouldn’t have had to cut the cash rate for two months in a row,” he says.
Chalmers says Lowe’s statement about consumption growth and wages being low is the key.
“[It] bolsters the case for Labor’s tax cut proposal to get more money into workers’ hands sooner.
“Two rate cuts in two months are a damning indictment of the Liberals’ economic mismanagement. Interest rates are now a third of what they were during the depths of the global financial crisis.”
Speaking of “strong competition” out there for good borrowers, Mozo’s director, Kirsty Lamont, says homebuyers should shop around for mortgage providers.
But like RateCity’s analysts said earlier, Mozo doesn’t see the big four passing on the rate cut in full.
“Unlike last month, they’re likely to hold back more of the interest rate relief and fire up the money presses,” Lamont says.
She says ANZ and Westpac saved $193m, projected over the year, by holding back some of the cut last month. And all the banks also delayed the date of the cut – which then saved them all $108m.
Last time, 47 lenders passed on the cut in full, 32 passed on part of it and seven didn’t pass it on at all.