The Reserve Bank of Australia (RBA) has revealed its decision on the official cash rate for June amid speculation the central bank will hold rates despite the fallout from COVID-19.
The central bank acted as most economists predicted, holding the cash rate at 0.25 of a percentage point, having previously stated it was the lower bound for Australian rates.
Bendigo and Adelaide Bank’s head of economics and market research, David Robertson, believes traditional monetary policy has run its course.
“No further cuts needed — we are on our effective floor for interest rates. The next increase is several years away when employment reverts to pre-COVID-19 levels,” he noted.
What’s next for the cash rate?
According to AMP Capital’s chief economist, Dr Shane Oliver, Australians should get used to a historic low cash rate for longer, with it likely to take time before the central bank can move again on interest rates.
“The cash rate is already at the RBA’s effective lower bound and Governor Lowe has reiterated that negative interest rates are ‘extraordinarily unlikely’, so rates won’t be cut,” Dr Oliver said.
“But with the economy taking a big hit from the coronavirus shutdown, economic activity has fallen well below potential, and this will take a long time to fully reverse, which means high unemployment and low inflation for several years to come, so the RBA can’t raise rates.
“We don’t expect the cash rate to start increasing again for three years at least.”