The Reserve Bank’s latest interest rate cut is too little, too late

The slower the RBA rates, the larger the pile of economic problems. Stephen Koukoulas Reports.

One of the main things standing in front of a more prosperous economy in the next few years is the policy decisions of the Australian Reserve Bank (Rba).

Of course, it provided a second interest rate to cut However, when the private sector expenditures are required to provide a very needed pick-up in investment and recruitment, it takes baby steps towards easier monetary policy.

Currently, the simple economic checklist in front of RBA shows the reason for the easier monetary policy is more urgently: to protect people who want a job in a job and to stop inflation too much. This can be done by returning the speed of economic growth to the tendency.

Here are the basic economic indicators:

GDP growth is currently 1.3% and the March quarter of the data is available next week, it will probably confirm. growth It is still stuck below 2%.
Annual inflation is in the target band of 2-3% of the RBA among all precautions. Both the title and average inflation ratio Your eye will remain on this band as much as you can see.
Labor market relaxationThe annual wage increase was around 3.4%, while the unemployment rate increased to 4.1% as a lower business advertisements and empty positions.

As the Governor of RBA, all these economic news interest rate “restrictive” Michele Bullock Then it was noted delivery 25 basic points were cut on May 20.

From a very simple economic point of view, “restrictive interest rates” means that monetary policy causes households and businesses to spend less, invest, and hire as they respond to higher interest rate costs. Money is directed to pay interest, which means less for spending elsewhere.

On the contrary, a “neutral” interest rates, which are estimated to be around 3-3.25%in Australia, are a ratio that promotes extra economic activities from the private sector. This is where official interest rates should be currently.

The concept of neutral interest rates is an important criterion because the official interest rates shows that approximately 75 basis points are very high.

Him press conference After the interest rate decision of the last week, Governor Bullock said that the Board reduces the interest rate of 50 basis points. Without giving any feature of why this proactive and logical offer is rejected. This means that monetary policy will be too tight for the coming months.

Even if it is rba cuts Interest rates, 25 basis points in each of the next three meetings, rates will not be neutral until the end of September 2025. Even then, it takes at least three to six months to have low interest rates on the economy.

If the current appearance for the economy has any disadvantages, interest rates may adapt or stimulate – that is below 3%. Therefore, RBA continues to risk a serious period of economic weakness with its delay in Australia.

There is no doubt that there is a significant risk of slimming under the weight of the global trade dislocations caused by the Trump tariff collapse of the global economy.

Governor Bullock emphasized This is last week in question:

We see that the growth in our big trade partners is slowing down the rest of this year and next year…

If the results of the trade are much worse for the global economy, we may face a much greater decline in Australia with its effects on inflation and unemployment.

This analysis alone should be locked in 50 basis points.

This is especially without a sign of a positive solution of the tariff trade war. High tariffs in one format Or in the next few years, the strange reconciliation and the US administration will take.

Until the RBA interest rates are neutral or even a little stimulating, the internal economy will be weaker than the need, inflation will be lower than the need, and the appropriate conditions in the labor market will quickly turn into a problem.

RBA was one of the last of the big center banks To start the cutting cycle of interest rates- to moveHe cut off at least.

Money markets continue price By the end of 2025, a number of interest rates is 3.1% in cash.

RBA will need to “capture” more to reduce RBA rates, to be weak and to repair the damage, which may be a problem to manage in 2026.

For this reason, there are an increasing number of economists looking for a 3% cash rate until the end of 2025/2026.

https://www.youtube.com/watch?v=decotfokxje

Stephen Koukoulas is one of the most respected economists of Australia, the former chief economist of Citibank and a senior economic advisor of the Australian Prime Minister. You can follow Stephen on Twitter/X @Thekouk.

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