Dr Brendan Rynne, KPMG Chief Economist comments on today’s interest rate announcement.

The RBA Board has announced it will continue with highly accommodative monetary policy settings in the near term, albeit with a couple of the monetary policy levers notched back a step.

As foreshadowed by KPMG the cash rate has been reduced from 0.25% to 0.10% at today’s RBA Board Meeting.

The RBA was obliged to cut rates to 0.25%. It is right that monetary policy should be working in a co-ordinated manner with the government’s fiscal stimulus packages.

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 RBA was right to keep rates on hold at 1 percent today and leave any further cuts till later in the year.

By cutting rates, the RBA is sending a signal to the market, to politicians and to the community at large, that the Australian economy is not firing on all cylinders

The sluggish GDP figures, particularly the weakness in household consumption, shows the RBA would have been justified in cutting cash rates faster.