The Reserve Bank has cut interest rates for the first time since August 2016.
The central bank boss has warned of further cuts by the end year, as the Treasurer admits the Australian economy faces “challenges”.
Reserve Bank governor Philip Lowe slashed the official cash rate on Tuesday to a fresh, historic low of 1.25 per cent but said in a speech last night it would be reduced further to help stimulate employment growth and inflation targets.
“Are interest rates going to be reduced further? The answer here is that the board has not yet made a decision, but it is not unreasonable to expect a lower cash rate,” he said.
“Our latest set of forecasts were prepared on the assumption that the 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.
“There are, of course, a range of other possible scenarios and much will depend on how the evidence evolves, especially on the labour market.”
Despite the likelihood Australians can expect their lowest rate in history to tumble further, Dr Lowe says it isn’t in reaction to a “deterioration in our economic outlook”.
“It is possible that the current policy settings will be enough — that we just need to be patient,” the RBA boss said.
“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.”
Major lenders NAB and Commonwealth Bank announced Tuesday afternoon each would pass on the full 0.25 per cent cut to customers.
But rivals ANZ and Westpac said they would pocket some of the cut, lowering interest rates on mortgages by 0.18 and 0.20 per cent respectively.
Treasurer Josh Frydenberg immediately condemned this decision, invoking the damning findings of Kenneth Hayne in the banking royal commission.
“We heard from Commissioner Hayne just months ago that the banks were putting profits before people,” he told reporters shortly after the move was announced.
“Actions like this don’t give the Australian people any comfort that the banks have changed their behaviour.”
Speaking on ABC Radio this morning, the Treasurer implored ANZ and Westpac customers to “vote with their feet” and shop around for a better rate.
“Customers are discerning and customers look for the best deal,” he said.
Mr Frydenberg spruiked employment growth to rebuke claims the need for a cut to its lowest level in history proves the economy is in a dire position.
But he did admit “there are some challenges” related to weak inflation and the struggling property market.
“We are facing economic challenges both domestically and internationally, particularly from the trade tensions between China and the US,” Mr Frydenberg told Nine’s Today program this morning.
Shadow treasurer Jim Chalmers said Westpac and ANZ’s choice to not pass on the RBA’s rate cut in full was “disgraceful” as the nation grapples with a slowing economy.
“We can’t afford to have banks pocket some of this interest rate relief,” he told ABC News this morning.
Mr Chalmers echoed Mr Frydenberg’s comments in reminding customers they can express their distaste by shifting their mortgages to a rival lender.
“They should certainly shop around to see whether they can get a better deal somewhere else,” he said.
news.com.au / JUNE 5, 2019