Are there more cash rate cuts looming for the RBA?

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Early this week, the Reserve Bank of Australia slashed the official cash rates to a record low at 1.75 per cent in a bid to prop up the economy. But Australians probably have not seen the last of it as further rate cuts are possible later this year.

“With the risk around weak wages growth, global disinflation, and potentially slowing demand, it seems highly unlikely that (the RBA) will choose to cut rates further with the next move timed for August,” said Westpac chief economist Bill Evans.

The rate cut could be a huge confidence booster for house hunters as they can take advantage of the low interest rates. The major banks have already passed on this cut. According to RateCity, on a $300,000 home loan, the interest rate cut will push the average variable home loan rate down to 4.4 per cent and save borrowers around $44 a month.

So far, the RBA is satisfied that regulatory actions to strengthen lending standards are working and that price pressures are abating. However, RBA governor Glenn Stevens predicted that the domestic economy is likely to grow “at a more moderate pace” than last year’s three per cent. He also said that the recent strength in dollar “could complicate” the economy’s transition.

According to Paul Bloxham, chief economist at HSBC, the possible reason why the RBA cut cash rates to a fresh low is low global inflation. If it persists, another rate cut might just be on the horizon.

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