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| Reserve Bank interest rates: RBA cuts rates to historic low of 1.25% – live | Reserve Bank interest rates: RBA cuts rates to historic low of 1.25% – live |
| (32 minutes later) | |
| The ANZ move is a big talking point. The team at RateCity point out that the small lenders Athena, RACQ and Reduce Home Loans have all passed on the cut in full. | |
| Sally Tindall, research director at RateCity.com.au, said all lenders needed to step up and pass on the cut in full. | |
| ANZ’s decision to not pass on today’s cut in full is a huge disappointment and now all eyes will on the remaining Big Banks to see if they can go one better. Reduce, RACQ and Athena were the first out of the starting blocks. This now puts immediate pressure on other lenders to pass the full cut on to both their new and existing customers. | |
| He’s also asked if the RBA cut is a sign that the economy is in trouble. After all, rates are basically at an emergency level never seen before, and have been for some years now. | |
| He dead-bats the question, saying the “fundamentals are sound”. Unconvincingly, he points to Philip Lowe’s statement as proof. The governor says the economy will grow by 2.75%, so it will, OK? | |
| You have heard from the Reserve Bank Governor today. He said employment growth has been strong and the central scenario remains for the Australian economy to grow by around 2.75% for 2019 and 2020. That was the comment from the Reserve Bank Governor today in his statement. | |
| Frydenberg’s press conference is continuing. | |
| He has been asked if he thinks the bank’s own borrowing costs have been reduced by this cut. Banks have sometimes claimed that their costs are not reduced by such cuts and therefore can’t afford to pass them on to customers. | |
| Frydenberg says that he thinks their costs have come down: | |
| In my conversations with the bank CEOs and chairman they have made it clear that some of their funding costs have come down. So this is a 25-basis-point reduction. It is the first movement in around three years and so in that sense it is significant but we would expect that the Australian people would see the benefit of these reductions in rates and the decision by the RBA and I’m very disappointed in the decision by the ANZ today. | |
| The treasurer is quizzed about the ANZ cut, specifically what he thinks of the bank’s decision not to pass the cut on in full. | |
| He says ANZ has “let down” its customers. | |
| I think the ANZ has let down itscustomers. This is deeply disappointing from the ANZ. We heard from commissioner Hayne just months ago that the banks were putting profits before people. Actions like this don’t give the Australian people any comfort that the banks have changed their behaviour. And as treasurer of Australia I have made it very clear to the banks that the public have a legitimate expectation that they will see the full benefits of rate cuts such as announced by the RBA today. | |
| The treasurer is giving a press conference now. He says it’s “welcome news for Australian households and businesses” and saus the government expects the banks to pass the cut on to borrowers. | |
| It is the government’s expectation, indeed, it is the public’s expectation that banks should pass on, in full, to consumers, the benefits of reduced funding costs as a result of the Reserve Bank’s decision. The impact of a 25 basis-point cut on a $400,000 mortgage is the equivalent of saving around $60 a month or $720 a year. A timely boost for households... | |
| If you thought 1.25% was low .... | |
| The gurus at Capital Economics think the cash rate might fall as low as 0.75%, spruiking their own early predictions that the RBA would start cutting this year in the face of a falling housing market. | |
| In a note after the RBA call, Capital notes the bank is sticking to its “glass-half-full rhetoric” about the Australian economy. But it believes most anlaysts are too optimistic about the outlook. It sees GDP falling to 1.5% compared with the bank’s 2.75% forecast and inflation staying at 1.7%. | |
| The upshot is that we expect the RBA to slash rates to 0.75% before the year is out. Rates falling below 1% will surely heighten speculation that the Bank will soon launch quantitative easing but we think that’s rather unlikely. | |
| ANZ is first out of the blocks and into Josh Frydenberg’s good books by reducing its headline rate by 0.18% (18 basis points as they say in the jargon where 1% = 100bps). | ANZ is first out of the blocks and into Josh Frydenberg’s good books by reducing its headline rate by 0.18% (18 basis points as they say in the jargon where 1% = 100bps). |
| Still keep 0.7% for itself though. | Still keep 0.7% for itself though. |
| The governor is speaking in Sydney tonight at 7.30pm and might provide some more insights into how he sees the cut impacting the economy. | The governor is speaking in Sydney tonight at 7.30pm and might provide some more insights into how he sees the cut impacting the economy. |
| Until then, plenty of other people have an opinion: | Until then, plenty of other people have an opinion: |
| I am so pleased to be the only person from the middle of last year to call interest rate cuts when close to 50bps of hikes were priced in & the RBA was telling everyone the next move was up. Others slowly joined the bandwagon with the last ones on the RBA itself! | I am so pleased to be the only person from the middle of last year to call interest rate cuts when close to 50bps of hikes were priced in & the RBA was telling everyone the next move was up. Others slowly joined the bandwagon with the last ones on the RBA itself! |
| The #RBA narrative is that the economy is not too bad but it can do more to push unemployment lower and inflation higher - seems the glass can be half-full even when you're cutting rates... | The #RBA narrative is that the economy is not too bad but it can do more to push unemployment lower and inflation higher - seems the glass can be half-full even when you're cutting rates... |
| In April 2017 I placed a massive $10 bet on the next RBA move being a cut at their juicy odds of $2.50. Played the long game and now I'm rich. | In April 2017 I placed a massive $10 bet on the next RBA move being a cut at their juicy odds of $2.50. Played the long game and now I'm rich. |
| https://twitter.com/hidflect/status/1135768170633973763 | https://twitter.com/hidflect/status/1135768170633973763 |
| The Aussie dollar has risen ever sop slightly to US69.76. That shows the 0.25% cut – an all-time low for rates here – was fully priced in and that some even thought the RBA could cut by 0.5%. It didn’t, so the Aussie actually rises. | The Aussie dollar has risen ever sop slightly to US69.76. That shows the 0.25% cut – an all-time low for rates here – was fully priced in and that some even thought the RBA could cut by 0.5%. It didn’t, so the Aussie actually rises. |
| The #RBA has cut interest rates to 1.25%, as was broadly tipped. $AUD has rallied slightly, while the #ASX has too. 2Y AGB yields climb, indicative of a market unwinding some future rate-cut bets. | The #RBA has cut interest rates to 1.25%, as was broadly tipped. $AUD has rallied slightly, while the #ASX has too. 2Y AGB yields climb, indicative of a market unwinding some future rate-cut bets. |
| The ASX200 has risen a little too. It’s up 14 points or 0.2% to 6334. The stock market just loves cheap money. | The ASX200 has risen a little too. It’s up 14 points or 0.2% to 6334. The stock market just loves cheap money. |
| Lowe’s tour de horizon continues with detailed comments about unemployment, inflation and the housing market. On the former he pinpoints April’s rise to 5.2% as a key moment but says wages are still expected to see some improvement. Likewise with inflation, although it’s way below his target at the minute it’s going to rise to above 2% next year. | Lowe’s tour de horizon continues with detailed comments about unemployment, inflation and the housing market. On the former he pinpoints April’s rise to 5.2% as a key moment but says wages are still expected to see some improvement. Likewise with inflation, although it’s way below his target at the minute it’s going to rise to above 2% next year. |
| Employment growth has been strong over the past year, labour force participation has been increasing, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these developments, there has been little further inroads into the spare capacity in the labour market of late. The unemployment rate had been steady at around 5 per cent for some months, but ticked up to 5.2 per cent in April. The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A further gradual lift in wages growth is expected and this would be a welcome development. Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment. | Employment growth has been strong over the past year, labour force participation has been increasing, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these developments, there has been little further inroads into the spare capacity in the labour market of late. The unemployment rate had been steady at around 5 per cent for some months, but ticked up to 5.2 per cent in April. The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A further gradual lift in wages growth is expected and this would be a welcome development. Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment. |
| The recent inflation outcomes have been lower than expected and suggest subdued inflationary pressures across much of the economy. Inflation is still however anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that. | The recent inflation outcomes have been lower than expected and suggest subdued inflationary pressures across much of the economy. Inflation is still however anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that. |
| The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality. | The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality. |
| The governor sticks to his guns about the Australian economy, predicting that it will grow by 2.75% this year and next. Big test for those numbers tomorrow in Q1 GDP data. He says investment in roads and rail is helping but the weaker outlook for domestic demand is not helping. | The governor sticks to his guns about the Australian economy, predicting that it will grow by 2.75% this year and next. Big test for those numbers tomorrow in Q1 GDP data. He says investment in roads and rail is helping but the weaker outlook for domestic demand is not helping. |
| The central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption. | The central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption. |
| In his statement, governor Philip Lowe homes in on his two main concerns – jobs and inflation– in his up-summing: | In his statement, governor Philip Lowe homes in on his two main concerns – jobs and inflation– in his up-summing: |
| Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time. | Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time. |
| Read the statement in full here | Read the statement in full here |
| The RBA has cut rates to 1.25% | The RBA has cut rates to 1.25% |
| It’s coming ... | It’s coming ... |
| The US dollar has continued to slip amid all that talk about a possible Fed rate cut. With the Aussie dollar downside all-but totally priced in ahead of the RBA move, that could even mean a mini rally in the Aussie today. | The US dollar has continued to slip amid all that talk about a possible Fed rate cut. With the Aussie dollar downside all-but totally priced in ahead of the RBA move, that could even mean a mini rally in the Aussie today. |
| Greg McKenna, strategist at McKenna Macro, told Reuters earlier that a Fed rate cut could be a circuit-breaker for the current gloomy market mood. | Greg McKenna, strategist at McKenna Macro, told Reuters earlier that a Fed rate cut could be a circuit-breaker for the current gloomy market mood. |
| Unless there’s a circuit breaker, and it may come in terms of a Fed cut, or it may come in terms of more Chinese stimulus or the European Central Bank later this week ... equity prices and bond rates are going to continue to go lower. | Unless there’s a circuit breaker, and it may come in terms of a Fed cut, or it may come in terms of more Chinese stimulus or the European Central Bank later this week ... equity prices and bond rates are going to continue to go lower. |
| The folks at the money-saving site mozo.com.au have attempted an analysis of how much the big four banks have saved by not passing on the last rate cut in full. Here is Tom Godfrey from Mozo: | The folks at the money-saving site mozo.com.au have attempted an analysis of how much the big four banks have saved by not passing on the last rate cut in full. Here is Tom Godfrey from Mozo: |
| We have calculated the ‘big four’ have pocketed approximately $3.6bn in revenue by not passing on the August 2016 cut in full. Also, by delaying the date at which their partial cuts in August 2016 took effect, they pulled in $7.1m per day - $113m in total. | We have calculated the ‘big four’ have pocketed approximately $3.6bn in revenue by not passing on the August 2016 cut in full. Also, by delaying the date at which their partial cuts in August 2016 took effect, they pulled in $7.1m per day - $113m in total. |