But rate cut may not come as soon as many expect
Expectations for a potential interest rate cut at the Reserve Bank of Australia’s (RBA) next policy meeting are rising, according to the Real Estate Institute of Queensland (REIQ).
The RBA opted to hold the cash rate steady at 4.1% at its April meeting, a move widely predicted by economists, with the central bank apparently awaiting more complete data on inflation, particularly the Consumer Price Index (CPI) figures for the March quarter, due at the end of the month.
REIQ chief executive Antonia Mercorella (pictured above) said the decision to keep rates unchanged came as no surprise, but attention has now turned to May’s meeting.
“After holding in April to gain more confidence inflation is under control, many home buying hopefuls and mortgage holders will be hoping the RBA will consider an additional cut to the cash rate in May,” she said. “The latest monthly inflation data confirms that inflation is back in the RBA’s target band, which is encouraging news for consumers and businesses alike.”
The current measure of underlying inflation sits at 3.2%. Economists have suggested that the RBA may require this figure to fall to 3% or below before considering a rate reduction.
“Households would welcome additional relief after suffering a significant fall in real disposable income over the last two years,” Mercorella said. “There have been signs of sluggishness in the private sector economy, and a rate cut would help improve the outlook for businesses.
“Additional rate cuts are required to lift consumer confidence and borrowing capacity. They also stimulate additional demand and the construction of new housing, which is sorely needed.”
Despite growing hopes, recent commentary from the RBA indicates that a rate cut may not come as soon as some expect. In its latest monetary policy statement, the RBA noted the ongoing decline in inflation but highlighted risks on both sides.
“The continued decline in underlying inflation is welcome, but there are nevertheless risks on both sides and the board is cautious about the outlook,” the RBA said in a statement.
Speaking after the meeting, RBA governor Michele Bullock stressed that while confidence in inflation returning to target was increasing, it was not yet assured.
“I wouldn’t say we’ve lost confidence,” Bullock said. “I’d say that we’re gradually getting more confidence, but I think it’s very difficult to be 100% confident.”
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