Australia’s central bank has flagged the possibility of more changes in interest rates after sounding a note of caution about the outlook for the economy.
The Reserve Bank of Australia (RBA) earlier announced the 25-basis point cut in the official cash interest rate that the market expected.
RBA Governor Michele Bullock said the bank’s Monetary Policy Board was confident about its decision to lower the rate to 3.85% because it was right at this point at the time.
“Where this leads us in the future is a little more uncertain I would have to say, probably a lot more uncertain, given everything that’s going on,” Bullock told a news conference.
She noted that the RBA had talked of different scenarios in the Statement on Monetary Policy published with its decision including “extreme downside” and “back to trade peace” scenarios.
”Depending on where we end up on that spectrum it’s possible there might be more interest rate adjustments,” Bullock said.
The interest rate cut was welcomed by Treasurer Jim Chalmers, who told a news conference: “This is welcome relief for millions of Australians. This is the right decision for the right reasons.”
Australia’s Big Four Banks responded to the rate cut by lowering variable interest rates on home loans by 25 basis points.
Bullock said although the Board had also discussed the options of cutting rates by 50 basis points and keeping them unchanged, the strongest argument was for the 25 basis points cut and the decision was made by “consensus”.
In its outlook statement, the Board said although the cut would make monetary policy somewhat less restrictive, it remained cautious about the outlook, particularly given the heightened level of uncertainty about aggregate demand and supply.
The Board said it considered a severe downside scenario and noted monetary policy was well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.
“It nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply,” the Board said.
