Pressure is mounting on the Reserve Bank of Australia to keep the cash rate firmly where it is when it meets next week following the worst result in economic growth in 20 years.
The key measurement of the nation’s economic growth, Gross Domestic Product (GDP), shrank 1.2 per cent in the first three months of the year, compared to one year ago, as natural disasters took their toll.
It was the worst result recorded since 1991.
Loan Market CEO Dean Rushton said the result had sent a loud message to the Reserve Bank to keep the cash rate on hold for the remainder of the year.
“The fact is, the Australian economy has had its largest decline in two decades and we’ve seen housing approvals hit 10 year lows. There’s a recovery period this country needs,” Mr Rushton said.
Urban Taskforce’s Aaron Gadiel said the Reserve Bank needed to do more than just keep interest rates on hold, it need to reassure Australians there was no rise even on the horizon.
“The Reserve bank’s board is due to meet next week. It won’t be enough to merely keep interest rates on hold. The bank should shift the tone of its language, to make it clear that interest rate increases simply aren’t on the agenda in the period ahead,” he said.
But despite the weak GDP result, such a figure was widely expected by economic commentators with many expecting the flood rebuilding effort and reignited mining sector to return the economy to a stronger position by the next quarter.
Just what the Reserve Bank makes of the result will be revealed when it meets to decide the next move for the cash rate on Tuesday 7 June.