The Reserve Bank of Australia (RBA) has cut its official cash rate to a new record low of 2.25 per cent at its February board meeting.
The move was against most economist expectations after the RBA ended last year with keeping the cash rate on hold at 2.5 per cent for the sixteenth straight month.
Today’s accompanying statement noted the continued decline in commodity prices reflecting lower demand and increases in supply.
Australia’s hot housing sector was also highlighted and the bank says it is working with other regulators to assess and contain economic risks that may arise from the housing market.
RBA governor Glenn Stevens says today’s interest rate cut is expected to support demand and foster sustainable growth and inflation outcomes consistent with the central bank’s target.
Earlier this year FNN spoke to Westpac Banking Corporation’s
(ASX:WBC) Chief Economist, Bill Evans who predicted the RBA would cut the key cash rate today:
Bill Evans: Well, while most people are in denial that something could happen as soon as February I think February could be the best time for the bank to start cutting rates. I don’t think that there is any doubt that they will cut rates in the first half of this year, it is just a matter of picking the timing.
The reason why February is a good time to do it, is that in February they also release their Statement on Monetary Policy and they are able to change their forecasts. And so, if they have cut rates at their February meeting they can provide a very detailed explanation as to why that has happened.
Lelde Smits: So Bill, you say rates are moving lower in February. How much are you expecting the RBA will cut?
Bill Evans: In February it will only be by about 25 basis points. I think if it was to be more than that, then the Governor [Glenn Stevens], being concerned about the impact on confidence of a rate cut, if it were more than the expected 25 [basis points] then that might smack of desperation. He certainly wouldn’t want to be doing that.
