Interest Rate Update

Declining Housing MarketAt its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.50 per cent, effective 3 August 2016. I have got to say that this move has surprised me. Even with low inflation, a slowing housing sector and moderate growth, the Reserve Bank is not left with much monetary stimulus for any future global shocks. In one of his last statements as the outgoing Governor Glen Steven said,

“Recent data confirm that inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.”

We may well have been flagging lower interest rates for the past 2 years but Australia has remained very subdued even with the shocks from other global economies. As yet we have not seen the current housing bubble burst nor China move any closer to a hard landing. It might well be possible that the Australian Central Bank has painted itself into a corner with regards to future interest rate policy. Or do they know something that we don’t?
“by Shane Clinton”

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