Reserve Bank of Australia chief Philip Lowe said the coronavirus is having a 'significant'effect' on the country's economy
Reserve Bank of Australia chief Philip Lowe said the coronavirus is having a 'significant'effect' on the country's economy

The Reserve Bank of Australia (RBA) might be facing some pressure to lower interest rates, as inflation is predicted to fall within the target range of 2-3% for the first time in three years.

The major economic shift and the projected rate reduction may force the RBA to reevaluate its current monetary policy position.

The government subsidies aimed at easing the cost of living are also driving consumer prices down significantly, Reuters reported. RBA is now dedicated to finding a balance, as the core inflation-- a reliable gauge of the of economy's underlying strengths and weaknesses -- might be slow to change.

As countries like the U.S. and Canada are expected to announce cut rates, it seems the RBA will not join them, at least not anytime soon.

With their next meeting on Sept. 24, RBA policymakers are proactively communicating that they are rather proceeding with caution. RBA's interest rates are relatively lower as it maintained a gradual approach than its peers. Thus far, Australia's interest rate is around 1% lower compared to similar countries.

RBA's cautious communication strategy was previously deemed unacceptable after former Governor Philip Lowe's 2021 promise that interest rates wouldn't rise until 2024 proved false, leading to his resignation.

"It is hard to recall a period of such a plethora of RBA communication over such a short period of time," said Gareth Aird, head of Australian economics at Commonwealth Bank of Australia (CBA).

"If the economic data over the near term evolves in line with the RBA's latest forecasts the cash rate will be left on hold until Q1 2025," he added. "But we continue to side with market pricing and think it more likely than not we will see a rate cut by the end of the year."

The RBA's reluctance to lower interest rates is a result of its worries about wages and employment. In addition to maintaining a robust labor market, the RBA seeks to contain inflation.