Where now for interest rates? The RBA Decides

Monday, 5 August 2013  Media Alerts

Economists from the Australian School of Business at UNSW Australia are available to give their commentary and analysis of the Reserve Bank's next interest rate move on Tuesday.

The Financial markets are pricing in a nine in ten chance of a cut tomorrow, of a cut to 2.5% from the present 2.75%, which would be a record low. However mortgage holders and businesses hoping for an interest rate cut may be disappointed following release of the minutes from the Reserve Bank of Australia's July meeting, which suggested the falling Australian dollar was doing enough for the time being to stimulate the economy.

The Australian School of Business' Professor James Morley is a member of the RBA Shadow board, which meets each Thursday before the decision by the Reserve Bank of Australia board. He said "domestic conditions provide scope for the RBA to cut the policy rate, which they will most likely do at tomorrow's meeting in response to a weakening outlook for China. However, it is essential that the RBA focus in coming months on keeping inflation expectations anchored during this period of adjustment in the dollar back to its long-run level."

The last time interest rates were cut during an election campaign was in 2007, when the RBA raised rates to 6.75%.

Tim Harcourt, the JW Neville Fellow in Economics at UNSW's Australian School of Business, said the threat of a prolonged recession in the US and Europe appears to be lifting, with stimulus measures there being removed - at the same time as Australia's global prospects look rockier.

He said "Australia's inflation rate in the second quarter was 2.4%, well inside the central bank's desired 2% to 3% target, thanks mainly to sharp falls in the price of petrol and domestic holidays, offset by increases in rent, and the cost of footwear and furniture. This may allow room for a cut. However worries about China's economy are now helping to fan anticipation for an interest rate cut tomorrow."

Other academics are also available to discuss how a change of interest rates would impact on inflation and unemployment.

For further comment call:
James Morley on 02 9385 3366, or Email james.morley@unsw.edu.au
Tim Harcourt on 0408 485 479, or Email tim.harcourt@unsw.edu.au

Media contacts:
Julian Lorkin: 02 9385 1574