RBA signals more rate cuts are possible

The heat is on at Sydney’s Bondi beach. Photo: Getty Images

The RBA has just released its Quarterly Statement on Monetary Policy.

It’s a massive document where the RBA sets out it thoughts on the Australian economy, with room to discuss important issues all the way up to global markets.

It also explains this month’s rate cut, which took the cash rate to a modern day low of 2%.

It’s clear that the RBA has taken out insurance on the economic future of the nation given that it has downgraded its forecasts slightly for the economy over coming years. Certainly it notes that “incoming data have generally provided more confidence that growth in household expenditure is gaining some momentum.”

But it has two clear messages in the penultimate paragraph of its introduction which help explain this weeks cut.

The Aussie dollar is too high and the house price appreciation is only concentrated in Sydney.

The Board noted that although financial conditions are very accommodative, the exchange rate continues to offer less assistance than would normally be expected in achieving balanced growth in the economy. It also noted that while housing price growth is very strong in Sydney, it has declined across much of the rest of the country, and there has been little change to the growth of housing credit in recent months. The Bank is working with other regulators to assess and contain risks that may arise from the housing market

It all means that rates are staying low for an extended period in Australia and suggests that the door has not been closed on more rate cuts.

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