Sunday, 13 October, 2019

Aussie Rallies After RBA Cuts Interest Rates

AUD  USD and NZD  USD Australia cuts interest rates to new low of 1%
Russell Knight | 03 July, 2019, 17:07

On the same day the four big banks announced plans to pass on a central bank interest rate cut, Reserve Bank Governor Philip Lowe called for more infrastructure spending and job creation policies.

RBA Governor Lowe said that "the uncertainty generated by trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside". "This could be in the form of a further rate cut, taking the cash rate below 1%, or consideration of an alternative policy measure to support the economy", he said.

'It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target... "Importantly, we will apply this reduction across all our variable rate home loans", said ANZ Group Executive, Australia Retail & Commercial, Mark Hand in a statement yesterday. "Frankly, two cuts might not be either, but it's a step in the right direction and it's great news for homeowners".

"The problem the big four have now is their online savings rates are at 0.3 per cent, there's not much distance to go anymore".

ANZ was widely criticised for failing to pass on the full rate cut to its customers after the June RBA rate cut, but it proved to be the only major bank to do so this time round, with it's Standard Variable Rate for owner occupiers to drop from 5.18% p.a. (5.28% p.a. comparison rate*) to 4.93% p.a. (5.03% p.a. comparison rate*) as of July 12.

But Lowe also noted "tentative signs" that housing prices are stabilising in Sydney and Melbourne.

Analysts are sceptical about whether banks will be able to pass on all of the reduction due to the impact it would have on their deposit rates, which in many cases would approach zero.

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Along with Prime Minister Scott Morrison's center-right government's surprise re-election in May - on a platform of tax cuts - the short-term prospects look brighter.

The rate has not been increased since November 2010, when it rose 0.25% to 4.75%. That was on top of tax cuts of A$144 billion a year ago.

"If you don't get the full cut, especially if you didn't last time, it's probably worth contacting your bank to see if they can do anything for you", he said.

Digital Finance Analytics founder Martin North said that it is highly likely for the RBA to decide to push through with a QE.

New Zealand business confidence fell to more than a 10-year low in the June quarter, with manufacturers the gloomiest sector, according to the latest New Zealand Institute of Economic Research quarterly business opinion survey.

"The board emphasised employment growth and the need to stimulate wages growth and therefore price inflation, with an explicit mention of the need to move inflation into the two-to-three percent target band over the medium term", BIS Oxford Economics chief Australia economist Sarah Hunter said.

"There's lots going on, just not much of it getting traction", he said. "You can get 12-month term deposits at around 2.5 per cent with some smaller lenders".

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