Australia’s good fortune is substantial: we have had nearly three decades of uninterrupted economic growth, and our major cities are some of the most liveable in the world.
Last month it was a 50-50 call on whether the RBA would reduce the cash rate. This month it was a lot clearer – rates were rightly cut by 0.25 percent today and there will probably be another 0.25 percent cut next month.
The latest GDP results reaffirm the economy is stuck in slow mode, with both consumption and investment activity treading water
I would suggest that the most prudent action from tomorrow’s Board meeting is for the RBA is to keep rates on hold.
Geopolitical risks are increasingly impacting the outlook of the global economy.
While the decision to cut the cash rate by 25bp to 0.75 percent was priced into the market as a near certainty, the factors influencing the outcome were certainly not straightforward.
The RBA was right to keep rates on hold at 1 percent today and leave any further cuts till later in the year.
The key here is that Newstart recipients are amongst the poorest people in society – so they spend, rather than save, almost all they receive, putting money back into the economy.
The immediate tax relief of stage one will put money in the hands of those who will spend.
The sluggish GDP figures, particularly the weakness in household consumption, shows the RBA would have been justified in cutting cash rates faster.
It seems inevitable the Reserve Bank of Australia will drop the cash rate in its meeting next week, and possibly again later in the year.
The Australian economy has slowed dramatically during the final quarter of 2018, with GDP growth of only 0.2 percent q/q, and 2.3 percent y/y
Growth expectations for Australia in FY19 and FY20 remain positive, albeit softer than last year.
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