Reserve Bank of Australia lowers key interest rate to 1%

Tuesday, 2 July 2019.

The Head of Australian economics at ANZ bank, David Plank, points out that the RBA has delivered the second of the two rate cuts assumed in its May forecasts. Key Quotes: “The reasons for the rate cut are exactly as in June: The decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target.” “There has been a change with the final, forward looking, part of the statement however. The words “if needed” have been added (our emphasis): The Board will continue to monitor developments in the labour market and adjust monetary policy if needed to support sustainable growth in the Australian economy and the achievement of the inflation target over time.” “While this change is subtle, we think it reflects the fact that with rates 50bp lower the case for further easing is not necessarily as pressing as it was. The RBA will decide on the need for more easing when it finalises its forecasts for the August Statement of Monetary Policy.”

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What is the Reserve Bank of Australia?

The Reserve Bank of Australia (RBA) is the central bank, or central bank, of Australia. The most important task of the RBA is to shape the money market policy for Australia. The aim of these policies mainly is to achieve low and stable inflation in the medium term. Other important responsibilities of the RBA are:
the maintenance of financial stability and the stability of the Australian dollar;
the maintenance of full employment;
a contribution to the economic growth and welfare of Australia’s inhabitants;
the Australian government’s role as a banker;
the release of the Australian currency;
the management of foreign reserves of Australia.

Cash rate target
When talking about Australian interest rates, the term usually refers to the Cash Rate Target, also known as the Official Cash Rate (OCR) or Cash Rate. This is the base rate in Australia. The banks pay this interest rate if they take out a loan with a term of 1 day with another bank. The RBA can majorly influence the money supply and thus the cash rate target by buying and selling bonds and other securities issued by the state. An increase or decrease in the cash rate also leads to a change in the interest rates of mortgages, loans and savings.

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