What will the Reserve Bank do with interest rates in August?

By Kelly Emmerton · · 2 min read
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Experts are predicting that the RBA will opt to cut interest rates once again at its August meeting, to a new record low 1.50%.

This month, the Reserve Bank kept interest rates on hold at 1.75% amid the chaos caused by Brexit and the Australian Federal election, but now 24 out of 25 economists surveyed by Bloomberg were expecting another rate cut, and financial markets put the likelihood of lowered interest rates at 71%, reported Business Insider.

Paul Dales, Australia and New Zealand chief economist at Capital Economics, told ABC news that, "The minutes of the Reserve Bank of Australia's July meeting confirm what the financial markets already know - that the release of the inflation data for the second quarter on 27th July will probably prompt the RBA to cut interest rates from 1.75 per cent to 1.5 per cent in August."

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Brexit seems to have had only a modest effect on the Australian economy and so likely won’t be a major influence on the Reserve Bank Board’s August decision. A slowing economy, weak job market and an uncertain housing market on the other hand, were cited as reasons why the RBA may want to ensure a lower Aussie dollar.

The minutes from the RBA Board’s July meeting on monetary policy noted that “dwelling investment had continued to grow strongly.” However, it also mentioned a number of new policies, both from state governments and banking institutions, which were set to discourage foreign investors by increasing taxes and tightening up lending standards.

The Board also noted that the amount of Aussie home buyers seeking out home loans had declined, “consistent with a relatively low level of turnover in the housing market and… tightening in lending standards.”

Whether or not the RBA chooses to lower the official cash rate at its August meeting, a rate rise appears unlikely, with interest rates looking set to stay low for quite some time. While that may be good news for borrowers, savers will need to count every penny and look for a high interest savings account in order to secure a decent return on their stash in the coming months.