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Factors behind this year's rate cuts

AAP logoAAP 4/12/2016 Colin Brinsden, AAP Economics Correspondent


MAY - Cash rate cut from 2.0 per cent to 1.75 per cent under former Reserve Bank governor Glenn Stevens - the first reduction in a year. It came after inflation pressures proved much weaker than expected with a quarterly decline in prices for the first time since December 2008. This took the annual CPI rate to 1.3 per cent, well below the central bank's two to three per cent target. Three of the big four banks passed on the full rate cut.

AUGUST - Cash rate cut from 1.75 per cent to a record-low 1.5 per cent at the penultimate meeting overseen by governor Stevens before his retirement. Inflation remained benign with the annual rate easing to a mere one per cent. Labor market conditions deemed to be "somewhat mixed". Subsequent data shows economy growing at rapid 3.3 per cent annual rate as of June. The big four banks passed on just 0.10 to 0.14 per cent of the rate cut.


DECEMBER - Central bank board meets for its third gathering under new governor Philip Lowe on Tuesday. Recent inflation figures for the September quarter showed an improved quarterly CPI rate of 0.7 per cent and an annual rate back up to 1.3 per cent. Unemployment rate is holding at 5.6 per cent, down from six per cent at the start of the year. However, employment growth has turned flat. Loans for housing investors are on the rise again. Banks have started lifting rates on their fixed rate home loans. Some economists see a negative GDP result in the September quarter national accounts on Wednesday, the day after the Reserve Bank meeting. However, 30-day interbank cash rate futures imply just a two per cent chance of a rate reduction by the central bank in December. The next board meeting is in February.

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