Biggest change from RBA on Aussie dollar: Craig James
GUEST OBSERVER
What does it all mean?
The biggest change in the text accompanying the interest rate decision were the comments relating to the Aussie dollar. Since May last year the RBA has suggested that the Aussie dollar was too high in relation to commodity prices. In April 2015 the RBA indicated that further depreciation of the Aussie dollar was “likely”. And in recent months it has noted depreciation was “likely and necessary”. In the latest statement the RBA merely says that “The Australian dollar is adjusting to the significant declines in key commodity prices.”- Perspectives on interest rates
- The previous rate cut was in May 2015 (25 basis points), taking the cash rate to a record low of 2.00%.
- There have been 10 rate cuts since November 2011.
- The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3.00% to 4.75%
What are the implications of today’s decision?
We remain on the belief that the Reserve Bank is reluctant to cut rates again, with the central bank questioning whether another rate cut would actually give the economy a boost or whether it would be counter-productive. If the Reserve Bank was to cut interest rates again – and it wasn’t in response to a major negative event – then it may very well be the case that many Australians would become less, rather than more, confident, questioning just how bad the economy really was if further rate cuts are deemed necessary.
Residential property investors need to do their homework. Some lenders have lifted interest rates; other lenders have retreated either in part or in full from the residential investment property market. At the same time, a large number of apartment projects are underway across the country, especially in Melbourne and Sydney.
Those seeking a return on cash investments also have homework to do to ensure they are receiving the best returns available.
CRAIG JAMES is the chief economist at CommSec.
