The attached note looks at the Reserve Bank of Australia’s decision to cut the official cash rate by 0.25% to a new record low of 1.25%.

The key points are as follows:

  • The RBA’s latest rate cut is aimed at heading off a further slowing in growth which would threaten higher unemployment and lower for longer inflation.
  • Cutting the inflation target would be a big mistake.
  • More rate cuts are likely to be needed ultimately taking the cash rate to a low of 0.5% next year. Ideally this will be combined with more fiscal stimulus.
  • For investors it means low interest rates for even longer.

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