In the wake of Brexit, share markets are volatile and uncertain, and experts are now expecting central banks around the world, including Australia’s Reserve Bank, to cut interest rates as a form of damage control.
When the Reserve Bank made the shock decision to cut rates to a historically low 1.75% this month, economists were already predicting another cut later in the year. The chances of that happening are now even greater, with the pound taking a hammering and global markets suffering from uncertain conditions.
Rabobank senior analyst Marc Soccio said, “the British pound has plunged, and the flight to safety by investors has pushed the US dollar and Japanese yen sharply higher against a large basket of currencies, including the Australian dollar.”
Although some of the damage caused by Brexit has already been mitigated and UK European and US markets seem to at least be on the road to stability, if not necessarily recovery, investors remain wary of sudden shifts amidst the uncertainty.
“In the near term, investor risk sentiment will remain the predominant driver of currency market movements and heightened volatility is to be expected, with some risk of increased intervention by policy makers in currency markets,” Soccio said.
As for domestic Australian economic conditions, the question of an RBA rate cut now seems to be not if, but when. Some economists have their money on an interest rate cut around August, reported the smh.com.au, believing that a July cut would be premature, since the dust from Brexit has yet to settle into a concrete outcome.
But a “pre-emptive” move by the RBA in order to prevent recession and continue growth is still a possibility.
So far, Brexit’s impact on Australia has been limited. It saw the UK become a more affordable travel destination for Aussie tourists - at least for the time being - although travel between the UK and Europe was set to become more expensive.
With uncertainty rife in global markets and present in the lead up to the Australian Federal Election, one thing is for sure - all eyes will be on the Reserve Bank’s interest rate decision next Tuesday.
We’ll be bringing you the RBA announcement action and keeping track of what it means for interest rates, so stay tuned! In the meantime, you can visit our comparison tables to check out some of the best home loan interest rates around, and the savings account that will earn you the most interest.