RBA rings alarm on high debt levels
Risks to financial stability could be building as house prices and debt levels keep rising, the Reserve Bank has caution...
The Reserve Bank of Australia has announced its decision on the official cash rate for November, amid speculation the next rate reduction will be in February 2020.
Despite the Federal Reserve reducing their official rates to between 1.5-1.75 per cent, the central bank has not lowered the cash rate domestically, holding at 0.75 per cent.
In the lead-up to Tuesday’s decision, comparison site Finder had surveyed 45 of the nation’s leading economists and commentators, and found a majority expecting a rate cut to be held off until February next year.
ANU’s Alison Booth was not surprised by today’s announcement, expressing the belief that the Australian economy is strong enough to hold at its current rate.
“Interest rates have just been lowered, and I don’t think the fundamentals yet warrant any further change,” she said.
Becoming more bullish on the economy prior to the announcement was AMP Capital’s Shane Oliver, who believes the market is currently having a gentle upswing.
“While September quarter inflation was low and economic data has generally remained soft, recent RBA commentary highlighting a gentle upturn in growth and greater tolerance for low inflation suggests a lack of urgency to ease for now,” he said.
Despite today’s unchanged rate, Finder’s survey has foreshadowed even lower rates in the future, with 64 per cent of economists predicting a rate cut in 2020. Finder’s insights manager Graham Cooke said despite the rate falling from 1.50 per cent in May to a predicted 0.50 per cent by February 2020, the general consensus is that the RBA’s cuts have had little impact so far.
Fears of a recession
While further rate reductions wouldn’t inspire the markets with confidence, 69 per cent of the economists surveyed in the lead-up to Tuesday’s announcement indicated a future recession is unlikely or very unlikely.
Consumers are not as confident – 50 per cent expect a recession within the next 12 months.
Noting this worry, more than half of the economists (56 per cent) think households are holding back on spending in fear of recession.
Mr Cooke said there is recession talk at large, both domestically and internationally.
“While slow wage growth and underemployment seem like cause for concern for consumers, Australian economists can see the light at the end of the tunnel,” he concluded.