INTERESTS RATES EXPECTED TO DROP
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Posted on: 28 May 2019

INTERESTS RATES EXPECTED TO DROP

The Reserve Bank may have to cut interest rates to historic lows to prevent unemployment from rising. Reducing the cash rate, which is now at 1.5% looked inevitable for some time as the economy steadied and inflation remained negligible – the change could take place in as little as two weeks.

Minutes from the RBAs policy meeting in May showed recently downgraded growth forecasts would have been lower still had they not incorporated current market forecasts with household income set to rise.

On Tuesday APRA put forward loosened lending restrictions through a change to servicing requirements, creating opportunity for an injection into the housing market and the economy.

RBA Governor Phillip Lowe said “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks' time, we will consider the case for lower interest rates.”

While the RBA had previously decided against cutting rates earlier this year due to the federal election, they will now look to make the move and should this not move the numbers in the right way as far as the unemployment rate is concerned, Lowe noted there are still other options available

“These include: further monetary easing; additional fiscal support, including through spending on infrastructure; and structural policies that support firms expanding, investing and employing people.”

The RBA expects household disposable income to grow at an average rate of 4% over the next couple of years, a number much higher than recent times. This will rely on the proposed government tax cuts going ahead, which so far have been delayed creating forecasts of an overall 0.3 percent dip in household income growth for the current year.

“The lower rate of income growth has also made it harder for households to pay down debt.” Lowe Said, making a further cut to the cash rate, which should soon be reflected by banks, most welcome to those left paying mortgages.

 “The lower rate of income growth has also made it harder for households to pay down debt.” Lowe Said, making a further cut to the cash rate, which should soon be reflected by banks, most welcome to those left paying mortgages. 

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