Cash Rate Outlook: The RBA on Standby

The key points in this report are:


  • The Reserve Bank (RBA) left the official cash rate unchanged at 1.0% at its August meeting after back-to-back cuts over June and July. The decision was widely expected by markets.
  • The RBA has reiterated that it would “continue to monitor developments in the labour market closely and ease monetary policy further if needed.” The RBA remains on standby, continuing to leave the door open for more easing.
  • There was only a small acknowledgement of the rapid deterioration in trade tensions between the US and China over the past few days. The RBA notes that there was “increased uncertainty” in regard to trade and technology disputes and it adds that “risks to the global economy remain tilted to the downside”.
  • In regards to the Australian economic outlook, the RBA’s language suggests it is seeing the glass as half full. The RBA states economic growth is expected to “strengthen gradually”. It references “lower interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilising in some housing markets and a brighter outlook for the resources sector” as factors supporting the economic outlook.
  • The RBA’s growth forecasts of 2.5% in 2019 and 2.75% in 2020 suggest economic growth running at a below-trend pace this year, and returning to trend in 2020.  We will gain further detail into the RBA’s thinking and forecasts in its quarterly Statement on Monetary policy, which will be released on Friday, after the Governor delivers his semi-annual testimony.
  • The RBA may be on the pause button for easing monetary policy, but we do not think it will be there for long. The support to economic growth is unlikely to be enough to drive a turnaround in the labour market sufficient to bring the unemployment rate down. The events over the past couple of days on trade further suggest increased downside risks to the global outlook. 
  • The RBA is continuing to indicate that it would lower official interest rates again “if needed”. A softening in employment conditions and the deteriorating global growth outlook suggests the RBA could see this need within the next few months. We continue to favour October as the timing for the next rate cut, but could not rule out September, particularly if employment disappoints and the global environment continues to deteriorate.


Please see the attached report for more information.



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