THIS SITE IS INTENDED FOR ADVISER USE ONLY

By clicking through to the Adviser content within, you confirm that you are a licensed adviser operating under an Australian Financial Services License.

I'm an Adviser

I'm not an Adviser

Another rate cut by the RBA

The Reserve Bank of Australia has cut the official interest rate by 0.25 percentage points to a record low 0.75 per cent – a decision that was widely anticipated by the market.

What happened?

  • The Reserve Bank of Australia (RBA) decided to lower the cash rate by 25 basis points to 0.75% at its monthly board meeting today.

MARKET REACTIONS

  • The RBA’s decision was almost fully anticipated by financial markets which have increasingly priced in a 25 basis points cut over the past few weeks, after more accommodative monetary policies were announced by major central banks overseas.
  • The Australian equity market reacted positively to the announcement, with the All Ordinaries Index rising by around 0.77%.
  • The AUD declined slightly versus the USD to 0.670.

Analysis

  • The RBA joined a number of major central banks in adopting more accommodative monetary policies:
    • The European Central Bank (ECB) reduced the deposit facility rate by 10 basis points to -0.5% on 12 September. The ECB will also restart its net asset purchase at a monthly pace of €20 billion per month from November.
    • The People Bank of China (PBOC) announced on 6 September that it cut the Reserve Requirement Ratio (RRR) by 50 basis points effective 16 September.
    • The Federal Reserve cut the target Fed Funds rate by 25 basis points, to a range of 1.75%–2.0%.
  • The RBA stated that "while the outlook for the global economy remains reasonable, the risks are tilted to the downside," and "the US–China trade and technology disputes are affecting international trade flows and investment as businesses scale back spending plans because of the increased uncertainty." Its assessment of domestic economic conditions is cautious, acknowledging that the June quarter GDP growth was lower than expected, but also citing a number of factors (lower interest rate, recent tax cuts, ongoing spending on infrastructure) which should support stronger economic growth in the future. The RBA concluded that "the economy still has spare capacity and lower interest rates will help make inroads into that."
  • Looking ahead, we expect the RBA to maintain its preference for monetary policy easing given softening data in Australia and the high level of uncertainty surrounding the global economy. The recent de-escalation in the US/China trade dispute, while modest in nature, is a positive development – but a longer term resolution remains difficult. This remains a key risk to the global economy. Domestic economic indicators are generally soft, despite a recovery in house prices in Sydney and Melbourne and lower interest rates.
  • Recent comments by senior RBA officials also suggest that there is a high likelihood of the RBA adopting some forms of unconventional monetary policy once the cash rate reaches 0.50%. The RBA will likely face this dilemma some time in the first half 2020.

 

Written by George Lin, Senior Investment Management, Colonial First State

Adviser use only

Unless otherwise specified, this document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) based on its understanding of current regulatory requirements and laws as at the date of publication. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including Colonial First State or any member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. Colonial First State is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension, FirstChoice Employer Super offered from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. It also issues interests in the Rollover & Superannuation Fund (ROSCO) and Personal Pension Plan (PPP) offered from the Colonial First State Rollover & Superannuation Fund ABN 88 854 638 840. Colonial First State also issues other investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments, other than FirstRate Saver, FirstRate Term Deposits and FirstRate Investment Deposits which are products of the Commonwealth Bank of Australia ABN 48 123 123 124, AFS Licence 234945 (the Bank). Colonial First State is a wholly owned subsidiary of the Bank. The Bank and its subsidiaries do not guarantee the performance of FirstChoice products or the repayment of capital from any investments. This document provides information for the adviser only and is not to be handed on to any investor. It does not take into account any person’s individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) before making any recommendations to a client. Clients should read the PDS before making an investment decision and consider talking to a financial adviser. PDSs can be obtained from colonialfirststate.com.au or by calling us on 13 18 36.

 

From time to time, Colonial First State enters into alliance partnerships with dedicated and experienced investment specialists. Each alliance represents an agreement for Colonial First State to provide third party distribution services within the Australian Financial Services intermediary market.

 

Past performance is no indication of future performance.

 

Stocks and investment options mentioned are for illustrative purposes only and are not recommendations to any person to buy sell or hold these stocks.

 

Taxation considerations are general and based on present taxation laws and may be subject to change. Clients should seek independent, professional tax advice before making any decision based on this information. Colonial First State is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and clients should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Contact us