Momentum builds for another rate cut

An official statement from the Reserve Bank of Australia has hinted at further interest rate cuts.

The Reserve Bank reduced the official cash rate to a record-low 2.25 per cent last week after it had remained at 2.5 per cent since August 2013.

According to a February statement on monetary policy, although low interest rates have helped bolster the economy, their effect appears to have diminished in recent months.

“Hence, growth overall is now forecast to remain at a below-trend pace somewhat longer than had earlier been expected,” the statement said.

The Reserve Bank said the economy would operate with “a degree of spare capacity for some time yet”, and that domestic cost pressures and inflation would remain subdued.

It also said that while the Australian dollar has fallen, it is still too high and so is providing less assistance in delivering balanced growth in the economy than it could.

Another rate cut would probably boost growth and reduce the Australian dollar without running the risk of a blowout in wages or inflation.

Domain Group senior economist Andrew Wilson told Real Estate Business last week that the Reserve Bank is likely to further reduce the cash rate.

AMP Capital chief executive also said there were good reasons for the Reserve Bank to make another cut.

All four of the major banks have now passed on last week’s rate cut in full.

[Related: Rate cut will be ‘double-edged sword' for industry]

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