How low can rates go? Central Bank drops hints at more changes
The Reserve Bank of Australia has left the door open for future rate cuts, as the economy tracks behind on growth targets. For property investors, this could mean even further falls in the cost of their mortgage.
In its minutes released on Tuesday, the governing body said that the labour market and low consumer spending were the two factors that are holding the economy back, and a driving force behind the historic cash rate low announced earlier this month.
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“Although there had been a modest pick-up in wages growth in the private sector, wages growth had remained low overall. In combination, these factors suggested that spare capacity was likely to remain in the labour market for some time,” said RBA governor Philip Lowe.
Mr Lowe said higher growth in disposable income was expected to support consumption but that outlook was uncertain, despite the short-term growth thanks to the tax offset.
As a result of these projections, some of the nation’s leading economists and research houses foresee another drop before the year is out.
“This is the first read on the labour market we have received since the RBA cut rates,” Sean Langcake, senior economist at BIS Oxford Economics, said about the RBA’s minutes.
“They will be looking for further employment growth in the coming months, and for the unemployment and underemployment rates to come down, ultimately encouraging wage growth. We expect the RBA board to cut rates at least once more this year, taking the cash rate to 0.75 per cent by year end,” said Mr Langcake.
