Reserve Bank of Australia cuts rates, some analysts critical
Rate-setters Down Under cut short-term official interest rates on Tuesday, arguing that it will support the labour market and cement inflation's rising path back towards target, with recent inflation outcomes having been "lower than expected".
Although according to some analysts, the main factor underlying their decision was the housing market.
The Reserve Bank of Australia cut its cash rate by 25 basis points to 1.25%, as expected by most economists, although the decision to lower rates was thought to have been close.
But for analysts at Rabobank the decision to cut appeared to have been a foregone conclusion.
In a research note sent to clients before Tuesday's policy announcement, they said that "whatever the RBA do they will look as silly as a wombat in a tutu."
"If they do nothing they look either behind the curve and stubborn, or frankly out of touch with reality; if they cut 25bp then they can try to dress it up any way they like, but they have been utterly wrong on everything that matters for a long time; and if they cut 50bp they can pretend they have saved the day when they will really be saying “We ARE the housing market”," they added.
For their part, policymakers in Sydney also noted the increasing downside risks stemming from trade disputes, saying that growth in international trade flows was "weak" and that the increased uncertainty was affecting investment intentions in various countries.
However, they said that the outlook for the global expansion "remains reasonable", pointing to policy stimulus in China and rising wages in most advanced economies to back up their case.
In Australia however, while strong hiring had seen wages rise in the private sector, overall wage growth "remains low", RBA Governor Philip Lowe said in a statement.
Also on the supply side of the economy, after remaining steady around 5.0% for "some months", the rate of unemployment had ticked higher to 5.2% in April, he said.
"Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment," Lowe continued.
And on prices, Lowe added: "The recent inflation outcomes have been lower than expected and suggest subdued inflationary pressures across much of the economy."
The Governor did also note that conditions in the housing market "remain soft".
"The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities," he added.
Policymakers' central scenario for inflation was for a rise in core CPI to 1.75% in 2019, to 2.0% in 2020 and a little higher after that.
"Today's 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."