On Tuesday, the RBA set the cash rate to 0.75 percent, a historic low. Following this, interest rates are expected to be close to zero, an attempt at jumpstarting the struggling economy, Australia’s GDP growth rate last quarter was at an extremely weak 0.5 per cent, continuing a trend of low growth over the last few quarters.
The expansionary stance in monetary policy is an attempt to keep employment high, economic prosperity of Australia high, and the dollar at a stable level. Australia’s unemployment rate sits at a sustainable 5.3 per cent (as of August 2019), however that number has been steadily creeping over the months. However, the Australian dollar has been experiencing relatively low levels of inflation, last quarter a 1.6% inflation rate.
With these metrics in mind, the RBA has determined expansionary monetary policy necessary to rejuvenate Australia’s struggling economy. Australia’s consumption levels have been significantly lower than in previous years, with the NSW retail sector feeling the squeeze.
The lower interest rates is good news for mortgage holders, creating savings of 0.2 per cent. However, it is no good for savers. There will be effectively no interest on big bank accounts.
It is expected that the RBA will continue cutting interest rates as necessary. A low of 0.25 per cent is expected by February next year.