Jun 05 2019
The Reserve Bank Board has cut the official cash rate by 25 basis points to 1.25%, ending Australia’s longest period without a change in the cash rate of 32 consecutive months. IBISWorld believes this decision will:
- Benefit the construction, property and retailing industries in Australia
- Increase consumer sentiment and business confidence
- Result in higher incomes that will support household consumption
According to IBISWorld, low inflationary pressures, a slight rise in unemployment and uncertainty surrounding the outlook for household expenditure have led to the RBA softening their stance on interest rates.
“The RBA likely made this decision due to the fact a lower cash rate will help get inflation back towards the central bank’s 2% to 3% target band, and it will also support employment growth. Inflation for the first quarter of 2019 came in at 1.3%. However, growth in the Australian economy remained robust in 2017-18, and is anticipated to grow at an annualised 2.75% over the years ending December 2019 and December 2020,” said IBISWorld Senior Industry Analyst Tommy Wu.
Apart from supporting inflation, the cuts are also set to benefit Australian households and businesses hoping to borrow money this year, with banks expected to pass on most of the rate cut to borrowers. Lower interest rates on home loans and business loans are forecast to support consumer sentiment and business confidence.
As lower business loan rates are expected to improve businesses’ outlook on the economy, the rate cut will likely provide some respite for the Construction division, with improved conditions anticipated in the House Construction and Multi-Unit Apartment and Townhouse Construction industries. IBISWorld projects these improved conditions will flow through to operators in the Land Development and Subdivision and Real Estate Services industries, as lower mortgage rates and more relaxed serviceability assessments on new mortgages will help ease the downward pressure on the property market.
An increase in household disposable income growth is also anticipated to boost household spending. According to Mr. Wu, “a lower cash rate will help curb weakening consumer spending, which we believe will support the Consumer Goods Retail subdivision and stimulate economic activity. Industries such as Motor Vehicle Dealing and Furniture Retailing are also expected to benefit from these trends.”
IBISWorld Industry Reports used in this release:
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: (03) 9906 3641
Mobile: 0422 773 995