The RBA has moved the official cash rate down 25 basis points to 1.25 per cent, in the first change since August 2016.
Top markets and economic experts were not surprised by the RBA’s decision. Comparison site Finder surveyed the nation’s leading economists and commentators, and found that 91 per cent expected a rate cut.
John Caelli of ME Bank previously stated that a variety of economic factors was going to force the RBA into a rate cut.
“It’s likely the RBA will cut the cash rate in June due to an ongoing combination of factors, in particular, some weakening in employment growth, weaker GDP data and the below target inflation rate,” said Mr Caelli.
Alison Booth of ANU believes it was only the May election that stopped an earlier rate cut.
“The governor of the RBA has more or less announced there will be a fall. It is clear that the RBA were considering it before the election, but for political reasons did not, as it would not do to be interpreted as a signal favouring either major party. The economic fundamentals now warrant a small change. Whether or not the banks follow through with a cut in their rates remains to be seen,” said Ms Booth.
What’s next for investors?
Today’s cut is a sign that the RBA wants to stimulate the rate of inflation that was at 0 per cent for the March quarter.
Experts predict more relief for home owners with the official cash rate continuing to fall. This should, for one, ease mortgage costs for borrowers. Some banks, like ING, had already dropped interest rates on their home loan packages in anticipation of a cut call today from the RBA.
AMP chief economist Shane Oliver believes the cash rate will continue to fall throughout 2020.
“Beyond Tuesday’s likely cut, we expect the RBA to cut by another 0.25 per cent in August, and we now expect the RBA to take the cash rate down to 0.5 per cent by mid next year,” said Mr Oliver.