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Will the RBA cut rates a second time?

By Catherine Rayward

What the experts are saying: will the RBA cut again?

A lot of industry commentators were left surprised following the Reserve Bank’s decision to cut the official cash rate by 0.25% to 1.75% in May. Since the announcement, many experts have weighed in on the debate of whether the RBA will reduce rates again this year.

What the experts are saying

St George chief economist, Hans Kunnen said if inflation stays low, he expects a second rate cut in August.

Commonwealth Bank has predicted another two cuts in 2016 – in August and again in November – which would bring the cash rate to 1.25%. Global investment bank, JP Morgan has said it forecasts a cash rate of 1.0 per cent or lower.

Why the cash rate has dropped

RBA Governor, Glenn Stevens said the latest reduction comes following information showing inflationary pressures are lower than expected.

“Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast,” Mr Stevens said in his May statement.

The RBA took into consideration the housing markets across Australia.It said the indications are that the effects of supervisory measures, such as APRA’s regulations introduced last year, are strengthening lending standards and that price pressures have tended to abate.

The RBA released the minutes from its May meeting confirming that the decision to cut the cash rate was not a straightforward one. The minutes showed that discussion was centred around the merits of adjusting policy versus waiting for further information before acting.

How did the banks react to the rate cut?

The 0.25% reduction is the first in 12 months, with interest rates remaining stable since May 2015. Following the RBA’s announcement, The Commonwealth Bank, National Australia Bank and Westpac all announced they would pass on the cut in full on standard variable rates.

ANZ announced it wasn’t passing on the rate cut in full, reducing its standard variable home loan rates by 19 basis points, stating the decision was made due to increased wholesale funding costs.

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