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Lower Rates to Generate Activity

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The Reserve Bank has stated that it is open to further reducing official interest rates while committing to maintaining them for an extended period at ultra low levels. Governor Philip Lowe suggests that while the fundamentals of the economy stay solid, the RBA is willing to generate quicker development by bringing the official cash rate below 1%.

Lowe claims the latest back to back interest rate reductions, lower tax rates for low and middle income earners, greater commodity prices, and stabilization on the housing markets in big cities will all sustain the economy. But if sufficient activity is not generated, the bank is prepared to reduce rates lower.

Markets placed the opportunity of a rate cut at the RBA conference on August 6 at only 20 percent, but expect their November conference to reduce the money rate to 0.75 percent. They also placed the opportunity that by the end of next year, the money price will reach 0.5 percent at Fifty-fifty. Westpac suggests that by the beginning of next year the formal rate will go up to 0.5%. Westpac chief economist Bill Evans claims the RBA will struggle to achieve its jobless rate objectives and wage development without further monetary policy relaxation.


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