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The Reserve Bank of Australia has announced the official cash rate for September amid higher unemployment, stage 4 lockdowns in Victoria and a soon to be reduced JobKeeper payment.
Despite some economic woes, the central bank has acted as most economists previously predicted, holding the official cash rate at 0.25 per cent for the sixth straight month.
Speaking before the announcement, AMP chief economist Dr Shane Oliver predicted the RBA will hold rates until government benefits completely expire in March 2021.
“For now, the RBA will remain on hold. It views the March monetary easing package as continuing to help the economy and the main action now being in fiscal policy,” Dr Oliver said.
The chief economist pointed out the potential of future cash rate changes after the JobKeeper completely ends in March.
“There is a significant chance it may cut the cash rate to 0.1 per cent, and it may do more aggressive quantitative easing, but that would not be for several months.”
“And it remains ‘extraordinarily unlikely’ to cut the cash rate below zero,” he said.
Staying lower for longer
Dr Oliver explained that savers better get used to a reduced rate as the economic recovery from the COVID-19 pandemic will be years away.
“The next interest rate move of significance is likely to be a hike. But with high unemployment and underemployment, lots of spare capacity in the economy and underlying inflation way below target, this is at least three years away,” Dr Oliver concluded.
Baillieu chief investment officer Malcolm Wood agreed with Dr Oliver, stating the central bank won’t move on rates until the economy is back on track.
“RBA to leave rates at effectively zero until the economy approaches full employment and inflation sustainably in the 2-3 per cent range. This appears years away.”