There’s been a lot of talk about a rate rise - or eight - in Australia’s future, but those in the know are cautioning that there’s not likely to be any change announced at the August RBA meeting.
After the minutes of the July meeting revealed that the Reserve Bank Board discussed a neutral cash rate of 3.50% at its last meeting, some industry experts took it to suggest a rate hike was looming.
But at a recent Australian Business Economists lunch in Sydney, Reserve Bank Governor Philip Lowe downplayed the chances of a rate rise so soon, saying that international trends wouldn’t necessarily dictate Australia’s economic path.
"Just as we did not move in lockstep with other central banks when the monetary stimulus was being delivered, we don't need to move in lockstep as some of this stimulus is removed,” he said.
On the other hand, he said the Reserve Bank would be reluctant to lower rates any further, even as wage growth and inflation remain weak.
"For a central bank with a single objective of inflation, the answer is relatively straightforward. Inflation is too low, so you do what you can to get inflation up. You need more monetary stimulus,” he said. "This approach does carry risks, though."
The main risk at the moment is record high household debt. According to Mozo Data Manager Peter Marshall, the RBA will likely steer clear of any action that could hurt households’ bottom line.
“Recent events suggest the RBA is paving the way for higher rates in the future, but they won’t be eager to make any snap judgements, or to upset a delicate debt situation by chasing an inflation target,” he said.
Inflation numbers were muted in the second quarter, with headline inflation dropping to 1.9% down from 2.1% in the first quarter. Although that puts it below the RBA’s target band of 2%-3%, Lowe’s comments suggest the RBA will stick to its waiting game for some time yet.
According to Marshall, “Change is likely coming, but it will be gradual. The likelihood of a move up or down at this point in time is very slim.”
Remember to keep an eye on our Reserve Bank announcement page to find out what Governor Philip Lowe has to say on Tuesday and how it will affect your finances.