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Home / Business / Economy

Aussie central bank cuts official rates to 1 per cent as global uncertainty mounts

Jamie Gray
By Jamie Gray
Business Reporter·NZ Herald·
2 Jul, 2019 06:25 AM2 mins to read

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The Reserve Bank of Australia has cut its official interest rate. Photo / Bloomberg

The Reserve Bank of Australia has cut its official interest rate. Photo / Bloomberg

The gap between New Zealand and Aussie official interest rates has widened after the Reserve Bank of Australia (RBA) cut its rate to its lowest ever point of 1.0 per cent today.

It is only the second time since 2012 that the RBA has cut in two consecutive months.

The new Australian rate compares with New Zealand's official cash rate of 1.5 per cent.

Economists expect the New Zealand rate to fall to 1.25 per cent in August, and some expect to see a second rate cut before the year is out.

RBA Governor Philip Lowe said today's cut would support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.

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He said in a statement the outlook for the global economy remained reasonable.

"However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside," he said.

Lowe said the RBA's board will continue to monitor developments in the labour market closely and adjust monetary policy "if needed" to support sustainable growth in the economy and the achievement of the inflation target over time.

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Westpac senior markets strategist Imre Speizer said the "if needed" comment was interpreted as the bank adopting a guarded easing bias, which means more rate cuts could be in store.

Speizer said the market reaction to the RBA's cut was muted because the move was widely expected.

He said the cut did not have immediate ramifications for the Reserve Bank of NZ's official cash rate.

"If the exchange rate remains where it is now, then there will be no implications at all," he said. "But if, down the line, it pushes the Kiwi higher, then it might," he said.

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Opinion

Hosking: Plunging confidence a massive issue for Govt

02 Jul 06:28 PM

The New Zealand dollar, which has been firming in recent weeks, last traded at US66.77 cents and A95.67 cents.

Over the year to the March quarter, the Australian economy grew at a below-trend 1.8 per cent.

Australian consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices.

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