Just 11 days out from the Australian federal election the Reserve Bank of Australia (RBA) will today hand down its monetary policy decision on interest rates. Is a rate cut likely? Let’s take a look…
The Case For A Cut
In its last monetary policy decision on the April 2nd, the RBA said, “The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”.
However, Australian CPI data for the March quarter from the Australian Bureau of Statistics (ABS) showed that inflation has ground to a halt, from 1.3% in the previous quarter to 0%.
This suggests the economy is not growing as well as it is believed.
The Federal Election Looms
As always with federal elections, uncertainty looms…
Many businesses are adopting a wait-and-see approach to determine the government of the day and the likely policies going forward, which could help to explain the sputtering CPI data.
The RBA has only changed interest rates in the middle of a federal election twice before, with the government changing hands both times. So, the RBA may wait for the dust to settle after the election before making a change in interest rates.
RBA Cut? Toss A Coin…
At the moment, the decision is about 50/50 based on the 30-day interbank cash rate futures market.
There are people who can mount a case for the RBA to cut, such as ANZ Banking Group (ASX: ANZ) chief executive Shayne Elliot who said it could put, “a bit of juice into the economy” and give people, “breathing space”.
Others like National Australia Bank Ltd. (ASX: NAB) acting chief executive Phil Chronican suggest a further cut may not have an effect with interest rates already very low, saying, “The only observation I’d make is that when interest rates are at absolutely very low levels, the effects of further changes in interest rates are relatively muted”.
He further said, “I don’t think the last two or three changes had much effect either”.
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At the time of publishing, Andrew does not have a financial interest in any of the companies mentioned in this article.
