The Reserve Bank governor has given the strongest indication yet that interest rates will be cut in June.
- RBA governor flags rate cut at June 4 meeting
- Rates have been on hold at 1.5pc since the last cut in August 2016
- A 25-basis-point cut would take the RBA’s cash rate target to a fresh record low of 1.25pc
In a lunchtime speech to economists in Brisbane, Philip Lowe said the RBA had decided at its last meeting that inflation would not rise back to the 2-3 per cent target unless unemployment fell.
The latest April jobs data, released last week, showed unemployment rising to 5.2 per cent from a low of 4.9 per cent earlier this year.
“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” he said.
“Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”
It is extremely unusual for the Reserve Bank to explicitly flag that it will be discussing lower interest rates at its upcoming meeting, hence making it extremely likely that discussion will result in a rate cut.
Markets increased their bets on a rate cut from 61 to 72 per cent once the speech was publicly released at 1:10pm (AEST), and the Australian dollar eased slightly from 69.11 to 68.9 US cents. The Australian share market also received a modest boost.
A 25-basis-point rate cut would take the RBA’s cash rate target to a fresh record low of 1.25 per cent, after nearly three years on hold at 1.5 per cent, following a rate cut in August 2016.
If the RBA does cut rates, it will be the first move in Mr Lowe’s tenure as governor, which commenced in September 2016.
More to come.