The Reserve Bank of Australia has too much to consider to cut interest rates with the federal election in the balance and global markets still reeling from Britain’s decision to leave the European Union.
It was highly anticipated the RBA would stay on the sidelines for the second successive month and maintain its cash rate at the record low of 1.75 per cent.
The prospects of a hung parliament in Australia and the continuing turmoil from Brexit left the RBA with little choice but to keep official rates on hold. The RBA has too much on its plate at the moment but further easing of the cash rate remains a possibility in the months ahead.
Any rate cuts by the RBA could still be negated by banks lifting their home loan interest rates out of cycle due to cost of funding and compliance issues.
The banks do want to lift rates in response to rising funding costs and the additional costs they face for the extra compliance and regulatory increase on reserves they had to have in place by the end of June. But the uncertain election outcome and other factors will also be weighing on the banks, which have come under attention from both sides of politics.
The RBA is facing many challenges both domestically and globally and it alone does not have the capacity to stimulate the economy by simply adjusting interest rates.
As we face uncertainty on the political front this will definitely make it increasingly difficult to manage the economy moving forward, but the future leadership will need to take responsibility for supporting the economy.
Failing that the RBA will have little choice but to keep reducing rates, which might prove fruitless.