RBA: further interest rate cuts likely – July 2015

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Reserve Bank of Australia (RBA) Governor Glenn Stevens stated the further interest rate cuts remains “on the table”

In a speech to the Anika Foundation Luncheon in Sydney on 23 July 2015, the Reserve Bank of Australia (RBA) Governor Glenn Stevens stated the further interest rate cuts remains “on the table”.
Here are some key points that the RBA Governor noted in his speech:

• the financial spillovers from the Greek situation have not been large;
• the likely direct economic [from Greece’s troubles] spillovers to the rest of Europe also seem fairly contained, since Greece is quite a small economy.
• the “quite spectacular developments” in China’s equity market may end up having little impact on the Chinese economy;
• the evolution of China’s property market and financial sector are likely to be more important;
• the depreciation of the [Australian] currency is having an expansionary effect on the economy;
• inflation that has been well contained;
• despite the lowest interest rates that any current borrower has ever seen, the pace of lending to households remains moderate;
• many Australians are saving more and using funds in ‘offset accounts’ to offset mortgages.
• despite the doom and gloom and fulminations over the airwaves, in newspapers and in cyberspace, business confidence has risen in recent months.

The question of whether they [interest rates] might be reduced further remains, as I have said before, on the table.Glenn Stevens, Governor Reserve Bank of Australia

My commentary

 by Dr Nigel Abery (Ph.D.)
My conclusion from Mr Stevens’ remarks is that despite some instability in certain sectors of the Global economy, the Australian economy remains fairly stable and is adjusting from the mining led economy. There does not appear to be an immediate need for an interest rate cut(s). However, the RBA is prepared to cut if needed.
I believe that sometime in the next six months there will be an event (some poor economic news), that will not be a disaster for the Australian economy, but will spur the RBA to cut interest rates to boost consumer confidence and encourage spending. This of course will not only boost spending on consumer goods but also increase property prices in major capital cities.

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