The minutes of the Reserve Bank’s May 3 meeting released just yesterday revealed that its historic Budget day rate cut of 1.75 per cent was a close call, nearly held off for further information on the economy.
The central bank revealed that it was ‘persuaded’ that it was the time to act, as the weak inflation during the first quarter of the year could be more than just a passing phase.
Even though the cheaper petrol helped push down the consumer price index to 1.3 per cent in the year to March, increased retail competition and low wage growth limited the impact of higher import prices on retail prices.
“Information from the bank’s business liaison suggested that firms generally had been unwilling to make offers of wage growth below 2 per cent,” the minutes said. “But if inflation was to be persistently lower than previously forecast, it was possible that, in time, this could be reflected in lower wage growth.”
Still, analysts expect that another cut is almost inevitable come August, given the moderating property prices, solid jobs market, and potentially weak inflation.
“Second quarter inflation will be incredibly important, but to see another rate cut in August, inflation may actually have to drop below 1.3 per cent,” said Angus Nicholson, IG analyst.
Similarly, Felicity Emmett of ANZ believe that the sharp downward revision this month to forecasts for underlying inflation suggest another rate cut in the horizon.
“There’s definitely a strong chance they’ll cut again in August,” she said. “They seem to have made a total reassessment to inflation, the wages outlook, and retail price pressures.”
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now