Close Up of Australian Cash Notes and Coins
Close Up of Australian Cash Notes and Coins

RBA tipped to make another cut

THE Reserve Bank is widely expected to deliver the first back-to-back interest rate cut since 2012 this week and set a new record low cash rate of 1 per cent as it makes a further attempt to kickstart economic growth.

With Reserve Bank governor Philip Lowe having already hinted at further cuts, most lenders expect the RBA to back up last month's 25 basis point move with another at its meeting on Tuesday.

Dr Lowe had indicated April's increase in the unemployment rate to 5.2 per cent - which was sustained in May - and stubbornly low GDP growth showed few inroads are being made into spare capacity in the labour market.

He has said it is "unrealistic" to expect a lower cash rate to boost growth on its own and has repeated his call for the government to support the economy with fiscal stimulus such as infrastructure investment.

But with little sign that government is heeding this call, an increasing number of economists expect what would be just a second cut in three years.

NAB economists Alan Oster, Ivan Colhoun and Kieran Davies said they did not see a need for the RBA board to sit on its hands with a pressing need to deliver stimulus to a stagnating economy.

"There is not much separating July from August given the time it takes for policy to have an effect on the economy, but we do not see a need for the board to wait," NAB said in a release last week. "In brief, the RBA is behind the curve and needs to catch up quickly."

NAB said there was a strong case for the RBA to do even more on policy, expecting another cut to 0.75 per cent in November.

The July rates decision will be announced by the RBA at 1430 AEST on Tuesday.


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