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The Reserve Bank of Australia (RBA) has announced its decision on the official cash rate for July amid speculation the central bank has reached the lower bound.
The central bank acted as most economists predicted, holding the cash rate at 0.25 of a percentage point, having previously stated it does not believe negative rates are effective.
Sarah Hunter, from BIS Oxford Economics, highlighted before the announcement that the RBA has no interest in moving the cash rate.
“The RBA has made it clear that, for now at least, they don’t see negative rates as being necessary or effective. So, I think the next move will be up, but it will be quite some time into the future,” she said.
CreditorWatch CEO Patrick Coghlan told investors to watch out for changes in September.
“While positive sentiment has increased in recent weeks as the economy and trade starts to open up, the big concern is what happens in and around September when the stimulus (consumer and commercial) packages potentially come to an end — namely, JobKeeper, JobSeeker, rental abatement, a home loan repayment reprieve (mortgage holidays), insolvency/bankruptcy legislation and safe harbour changes,” he said.
“There’ll be a serious shock to the economy as people are once again forced to start paying the bills and/or stop receiving government incentives.”
When will the central bank raise the cash rate?
IMF Investors’ chief economist, Alex Joiner, believes savers will suffer through low rates for the foreseeable future.
“The RBA is going to have its current policy settings in place for an extended period of time as it needs to support the economy while the labour market repairs,” Mr Joiner said.
“It is difficult to envisage a rise in the cash rate before the end of 2022 in my view, as not only do unconventional policies need to be unwound first, it is abundantly clear the RBA won’t want to be ahead of other central banks in removing their huge stimulus programs and therefore putting undue upward pressure on the AUD.”
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