Reserve Bank of Australia to release interest rate decision

The Reserve Bank of Australia (RBA) is expected to lower the country’s interest rate from 0.25% to 0.10% today.

Accounting for inflation, real interest rates in Australia are already negative, but RBA Governor Philip Lowe is hesitant to officially lower rates below zero percent. In the first six months of 2020, the Australian economy contracted by 7.3%, but a slight uptick in GDP growth in September has many media outlets prematurely proclaiming an end to the pandemic-induced recession. Ultimately, rates will decrease today if the RBA determines that there is still room for expansionary monetary policy to stimulate growth.

Pent-up demand as a result of coronavirus-related lockdowns has led to increased manufacturing and economic activity, however Australia still faces an unpredictable recovery. Business revenues and prices have fallen, and the Australian treasury has projected that it may take five years for unemployment to fall back below 5%. A combination of increasing under-employment, record-low wage growth and record-high debt has left many Australian households unable to increase consumption, leading to a lack of effective demand throughout the country, which will stifle the RBA’s ongoing attempts to promote growth through monetary policy.