In a bid to prop up the inflation, the Reserve Bank decided to cut the official cash rate to a new record low of 1.5 per cent. But this move has so far produced only a few clear winners.
With Australia’s biggest banks deciding to only pass a portion of the rate reduction to mortgage and business customers, the benefits of the rate cut may be more muted than originally intended. While the Australian dollar climbed to a three-week high following the rate cut, consumer price gains are still predicted to remain below its targeted range.
According to the RBA’s growth and inflation forecasts, only little has been changed by the recent rate cut. The economy is predicted to expand 2.5 per cent to 3.5 per cent this year. Core inflation is still expected to remain below two per cent until 2018. As for the S&P/ASX 2000 index of stocks, it even fell 1.2 per cent from its close on July 29. The major banks’ decision not to pass on the full rate cut to their borrowers and instead increase selected term deposit products for their savers further complicates the transmission of RBA’s policy through the economy as it seeks to stoke inflation and business investment.
“I believe zero measurable macro impact will come from this latest rate cut,” said Andrew Ticehurst from Nomura Holdings. “We’re getting to the point too where rate cuts are having absolutely marginal beneficial impact. The Reserve Bank has very limited remaining ammunition.”