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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.


  • 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.


  • 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

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