A top RBA official has said a recent cut in interest rates would not be enough to revive economic growth, an unusually blunt declaration that led markets to narrow the odds on another easing as early as July.
The RBA Governor Philip Lowe said it was “unrealistic” to think that the single quarter-point cut in rates to 1.25 per cent would work on its own and called for the government for more action on fiscal stimulus.
“The most recent data – including the GDP and labour market data – do not suggest we are making any inroads into the economy’s spare capacity,” said the top central banker.
Annual growth in the economy slowed to a decade low of 1.8 per cent in the March quarter while the jobless rate has ticked up to 5.2 per cent from a low of 4.9 per cent in February.
Inflation and wages growth have also been more subdued than the bank previously expected.
Lowe said Australia could, and should, push unemployment down to 4.5 per cent and easing policy would help deliver that goal.
Investors reacted by sharply lifting the probability of a July rate cut to 76% <0#YIB;>, from less than 50.0 per cent before Lowe’s speech. The Reserve Bank of Australia (RBA)’s next policy meeting is on July 2.
A move to 1.0 per cent is more than fully priced by August, and yet a further easing to 0.75 per cent by Christmas.
The RBA is hardly alone in easing, with both the US Federal Reserve and the European Central Bank this week reversing course and opening the door to new stimulus.
That shift took a toll on the US dollar and euro, and even helped the Australian dollar edge up from five-month lows. The Aussie was last up 0.1 per cent at $0.6890.