RBA Governor Philip Lowe used a speech to explain today’s rate cut. He emphasized that the decision “is not in response to a deterioration in our economic outlook”. But its to “support employment growth and to provide greater confidence that inflation will be consistent with the medium-term target.”
The timing of today’s cut was due to “accumulation of evidence” of subdued inflation, significant spare capacity in the labor market. And collectively, these factors have contributed to delayed progress in returning inflation to the 2–3 per cent target range.
Meanwhile, RBA board “has not yet made a decision” on whether there will be more interest rate reduction. He noted that current set of forecasts were based on assumptions that “cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year.” But a range of other possible scenarios and much will depend on how the evidence evolves, especially on the labour market.
He added: “It is possible that the current policy settings will be enough – that we just need to be patient. But it is also possible that the current policy settings will leave us short. Given this, the possibility of lower interest rates remains on the table”.
