RBA rate cut recap: Reserve Bank Governor Michele Bullock explains why interest rates were cut

Not long now until we find out whether homeowners get a few extra dollars in their pockets each week.

The decision will be handed down in 20 minutes at 2.30pm AEST.

Don’t go anywhere!

If the RBA did cut rates today, it would put them below 4 per cent for the first time in two years, but economists warn the Reserve Bank will tread very carefully from here.

The conditions for a cut are about as good as they can be, with inflation safely in the two to three per cent band across both headline and underlying measures.

The economy is sluggish at 1.3 per cent annualised GDP growth, still well below the pre-COVID average of 2.4 per cent. But it has ticked up from its post-COVID low of 0.8 per cent in the September quarter.

Here are the key issues on the RBA board table.

Meet Liz and James. They’re a young couple from Sydney.

They’re also living with their parents while they save for a house.

Anyone who’s followed housing prices over the last few years has a pretty good idea where they’re at - especially in Sydney.

For this couple, if the RBA were to hold on interest rates, it would mean their ability to find a house would be easier.

Here’s why.

Judo Bank economist Warren Hogan expects a rate cut but reckons there’s no “urgency” for the RBA to move.

“The data and trade news from (last week) suggest there are no signs of urgency for the RBA to cut rates and inflationary risks remain in the economy, however a 25 basis point cut is still expected,” he said.

Strong wages and jobs data would argue for caution, yet weak retail sales, easing wage pressure, falling inflation, and trade uncertainty would add to the case for a cut.

“Given the flow of data has been 50-50 between upside and downside risks, the RBA’s previous move in February suggests they will pre-emptively choose to lower the cash rate instead of taking the wait-and-see approach in May,” Mr Hogan said.

The Reserve Bank’s board is coming up to the end of a two-day meeting to make a call on interest rates.

High on their list to discuss will be last week’s employment data.

Those numbers were good news for job seekers, but also showed the Reserve Bank there’s no great urgency to cut the cash rate.

A remarkable 89,000 new roles were created in the month of April. Unemployment stayed at 4.1 per cent, very low by historical standards.

The central bank must balance between fighting inflation and keeping the labour market strong, so the data will give the RBA confidence that there are still plenty of jobs available for Aussies.

Yet the RBA will want to look at the road ahead rather than just the rear view mirror.

Global trade chaos and slow economic growth will worry the central bank because both could lead to rising unemployment in the future — and that’s more important for the rates decision than good jobs news of the past.

HSBC’s economist Paul Bloxham expects the cash rate will be lowered to 3.85 per cent today.

He said a rate cut would have been a close call, except for the global trade shock and stalling consumer spending.

But Mr Bloxham praised the Reserve Bank’s success bringing down inflation without driving up unemployment.

“The RBA’s patient approach to dealing with the post-pandemic inflation surge has paid off,” Mr Bloxham said.

“Core inflation has fallen back into the RBA’s target band without a recession or large retrenchment of the jobs market.

“The economy is close to fully employed and dis-inflating. This is the good news. But there are deeper problems.”

Those problems include the heavy role of public spending driving growth and stalling productivity. Each Aussie’s slice of the pie has been getting smaller.

“To lift living standards a revival of the private sector will be needed. Rate cuts will not be enough. Structural reform is needed.”

Mortgage holders who can afford to keep up with their repayments will be significantly better off over the long term if they can resist the lure of an interest-rate cut.

According to research by Canstar, the average Australian borrower with a $600,000 mortgage and 25 years remaining on their debt could save $89,143 in interest payments simply by keeping their repayments at the same amount they were paying in February.

The data is based on four interest rate cuts, expected in February, May, August and November.

Read the full story here.

When the Reserve Bank releases its Statement of Monetary Policy at 2.30pm today, economists will be scrutinising the language to determine what it means for future rate cuts.

Currently, most economists are expecting at least two more cuts by the end of the year, bringing the official cash rate down to 3.35 per cent.

But with global uncertainty, how the Bank frames its forward outlook will either confirm or confuse those predictions.

Brien McDonald, senior economist at National Australia Bank is looking for guidance on what is the “neutral rate” - an official cash rate that is neither restrictive or stimulatory.

After a decade of ultra-low rates following the Global Financial Crisis and COVID, that rate is expected to be significantly higher.

Diana Mousina, deputy chief economist is looking for something similar.

If the RBA says monetary policy is still restrcitive, that suggests “the amount of cuts so far is small and more is likely”.

By contrast if the Bank says there is too much uncertainty, or “we have to be careful about the pace of easing”, that suggests any future rate changes will be minimal or take place only when the data confirms it is time to move.

Mr McDonald is also looking for a steer on how the ‘Liberation Day’ tariffs have affected the Australian economy, and where pockets of inflation continue to bedevil the economy.

Expectations are high that the RBA will cut interest rates today, with a decision due at 2.30pm Sydney time.

Markets tip are nearly-certain that the official cash rate will be cut 25 points to 3.85 per cent.

But there are a few reasons to be cautious. Analysts warn borrowers should be wary of the risk that inflation bounces back.

Read more here from The West Australian.

It’s been a huge day in news already but let’s be honest - the main thing on everyone’s mind is interest rates.

Will the Reserve Bank cut rates again for the second time in a row, and provide some much needed relief for Aussie homeowners?

The answer is probably - but even if they do that doesn’t mean it will be good news.

The hidden danger behind another rate cut if that housing prices may go up again.

Which means that anyone trying to get into the market will find it even harder.

Read the full story here.