Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
A leading economist expects the Reserve Bank will hold fire on cutting the cash rate any further amid rumblings on financial markets it could be reduced to 0.1 per cent.
The central bank slashed the cash rate to a record low 0.25 per cent in March among a suite of measures to combat the economic slowdown in response to the COVID-19 pandemic.
The Reserve Bank’s minutes of its September 1 board meeting, released on Tuesday, reaffirmed that fiscal and monetary support would be required for some time given the outlook for the economy and the labour market.
“The board … agreed to maintain highly accommodative settings as long as required and to continue to consider how further monetary measures could support the recovery,” the minutes said.
The meeting took place the day before the June quarter national accounts showed the economy had contracted by a hefty seven per cent, confirming the first recession in almost 30 years.
Westpac chief economist Bill Evans said while there is speculation the cash rate could be cut to 0.1 per cent in the future, he expects the central bank will remain patient.
“My personal view is that it is unlikely that they would move to such a low rate at this stage,” he said, noting Reserve Bank governor Philip Lowe has previously stated that 0.25 per cent would be the effective low.
Meanwhile, a further rise in consumer confidence has disguised weakness among Melburnians who are unhappy about the drawn-out coronavirus lockdown.
The ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – rose 1.4 per cent last week, a second consecutive increase.
However, confidence was weaker in Melbourne, dropping more than five per cent from the previous week.
“This suggests the announcement of the long path out of lockdown restrictions negatively impacted sentiment,” ANZ head of Australian economics David Plank said on Tuesday.
The Australian Bureau of Statistics’ slightly dated residential property price indexes showed the average for the eight capital cities fell 1.8 per cent in the June quarter.
Only Canberra prices rose, up 0.8 per cent, while all others fell – led by a 2.3 per cent drop in Melbourne and a 2.2 per cent decline in Sydney.
Even so, Commonwealth Bank chief economist Stephen Halmarick expects that low interest rates will provide ongoing support to home buying.
“We recently revised our house price forecasts for a peak-to-trough decline of minus six per cent – previously minus 10 per cent – but with substantial deviation expected across the capital cities,” Mr Halmarick said.
Another report showed the contraction in the manufacturing sector slowed markedly in the September quarter after being ravaged by the pandemic three months earlier.
The Australian Chamber of Commerce and Industry-Westpac survey of industrial trends composite index was 42.4 points in the September quarter after diving to 24 points in the initial national lockdown in response to COVID-19.
However, with the index still sub-50, it suggests conditions are still contracting, but at a much slower rate.
“The dramatic decline in the manufacturing sector appears to have bottomed out in the September quarter with the reopening of the economy in most states and territories, yet the business outlook remains pessimistic – scarred by the second lockdown in Victoria,” ACCI CEO James Pearson said.