Morning Briefing: Cash rate holds but experts ‘concerned’ about year ahead

The cash rate held yesterday but experts are nervous about the future

The Reserve Bank left the official cash rate at 1.5% yesterday, but says it’s time to consider other methods to promote economic growth as 58% of experts surveyed are ‘concerned’ about the coming 12 months.

Graham Cooke, insights manager at says, “We haven’t yet seen much reaction to last month’s cut, with a number of experts beginning to question the tool’s efficacy as it gets closer to zero.

“The RBA’s adjustment of the interest rate is mainly effective at curtailing high inflation, and has shown ineffectiveness at spurring inflation. We are lucky in Australia that we still have room to cut – but the Government may need to look at alternative methods.” 

Liberty’s Lynne Jordan agrees that the easing of monetary policy may not be the most effective strategy. 

“As we’ve seen in overseas markets, in particular Japan, Europe and the US, monetary stimulus hasn’t produced the desired result. This suggests not only is the RBA going to have to push interest rates to even lower record levels, but there will be an increasing need for the Government to use other measures such as fiscal stimulation if they are going to succeed in their objectives.” 

The Housing Industry Association’s chief economist, Dr Harley Dale said the Reserve Bank’s decision indicates the central bank has taken a less positive tone.
“Should the economic situation deteriorate from here, though, you’d have to say the RBA has already done its work,” said Dale.

“The welcome, but at times less than subtle message leaving the lips of our outgoing RBA Governor – Glenn Stevens is that Australia’s future now rests with the commitment from our elected representatives to undertake economic reform. That’s about strong and brave governance, not monetary policy.”