RBA's August interest rate decision to be delivered this afternoon

ABC NEWS (Australia)

The Reserve Bank will deliver its interest rates decision this afternoon after a surprise move to keep the cash rate steady at 3.85 percent last month. Economist Diana Mousina says another cut would benefit the economy.

Transcript

00:00I think we basically have had the confirmation that the Reserve Bank was looking for with

00:07the June quarter inflation data.

00:09So we do get monthly inflation figures in Australia, but they are relatively new series

00:14and the Reserve Bank is a bit cautious about putting too much emphasis or weight on them.

00:18So they wanted to wait for that data.

00:22They got it after the last meeting in July and it basically showed that inflation's running

00:27around the middle of their 2% to 3% target band.

00:30So it was the confirmation that they really needed, that we're not seeing too many upward

00:35inflationary signals or pressures at the moment.

00:39And I think that that's enough for them to cut interest rates today.

00:43We know that there were three people of the nine people board last month that wanted to

00:48cut rates, but six people wanted to hold rates steady.

00:52So we know that there are people on the board that want to cut rates.

00:58The RBA has been a bit reluctant, I guess, to ease interest rates too quickly.

01:02We have already had two rate cuts this year and I think that this third one will provide

01:07some further support to the economy, which I do think is needed because consumer spending

01:11is still quite low.

01:12It wasn't an odd decision last month, in your opinion.

01:16I mean, the June jobs numbers dropped the day after that decision, of course, and they were

01:20a bit weaker than most had expected.

01:23Yeah, look, if I was on the board, I would have voted for a cut last month and that was

01:29our forecast at AMP.

01:32I suppose from the RBA's point of view, they would have thought, well, we're just waiting

01:37another five weeks for our next meeting.

01:40It's not really going to make or break the economy if we don't cut rates today.

01:45And on their forecast, that monthly June jobs data was a little bit worse than expected.

01:51But when you average out some of the volatilities that happened in the monthly data, it was basically

01:56in line with expectations.

01:57I think that's the way that they would be looking at things.

02:00And then the broader set of economic data as well has more or less been in line with

02:04the Reserve Bank's forecast.

02:05So I suppose from their point of view, it's not like there's a pressing need to cut interest

02:10rates right now.

02:10The economy is not collapsing, it's sort of running at low-ish levels, but it's not terrible.

02:17The labour market is still holding up well.

02:20And we've had a bit of rate relief, which takes time to work through the system.

02:23So that's why they're cautious and they're also worried that if they cut rates too quickly,

02:28that inflation is going to make a rebound again.

02:31And that's something that they desperately want to avoid.

02:33Deanna, the US has extended a deadline on these significant sanctions imposed on China

02:40by another 90 days.

02:41What is that going to mean for us here in Australia?

02:45I think that that decision was quite expected by financial markets because we haven't really

02:52seen too much noise from the Trump administration in the last few weeks that they want to hike

02:58tariffs on China again.

03:00I think they've basically realised that the two countries can't really decouple from one

03:05another.

03:05They are extremely reliant on each other from a trade point of view.

03:08They both export about 15% of their goods to one another and both of them make up about

03:14half of world growth every single year.

03:16So the Trump administration doesn't want to make investors too nervous if they are to

03:22and start imposing more tariffs on China.

03:25I think basically this is good news for Australia because we are very reliant on the Chinese economy

03:32for demand for exports and we don't want to see a major slowing in Chinese growth, which

03:37could occur if the US suddenly stops importing Chinese products.

03:41Chinese economic activity could soften a bit.

03:43So I think that this is good news for Australia.

03:46I mean, there are still some more things that need to be resolved from the tariff front.

03:52We know that pharmaceutical tariffs are probably going to go up.

03:55We haven't had an announcement on that yet.

03:56And we are yet to see what full impact tariffs have on the US consumer.

04:02We're starting to see that come through.

04:03Inflation is picking up a little bit.

04:05And I suppose the concern is that inflation may rise a lot in the US and that would sort of

04:10derail any further rate cuts and it may send the US economy into a bit of a dip.

04:15That's not our forecast right now, but that is a risk that we are mindful of in the next 12 months.

04:22Deanna Messina, Deputy Chief Economist at AMP.

04:26Thanks, Gemma.

04:27Thanks, Gemma.

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