In September we witnessed another month and another rate hold. Both pre and post the September rate announcement commentary from economists and analysts alike suggested the RBA were keeping an easing bias because of Europe.
But what does “keeping an easing bias” mean exactly? There is a chance home owners will have read the term but misunderstood exactly how it relates to the Australian economy.
We put the question to Aussie’s founder and Executive Chairman, John Symond.
“When the RBA or economists refer to an easing bias, it means that the outlook is much more swayed toward the downside and that things will deteriorate. This means that they’ll most likely drop interest rates.”
Straight forward enough? Symond was able to further explain with a simple analogy.
“For the RBA, controlling the cash rate is a bit like hitting the accelerator when driving a car. If they want to push things along like they did this month, they hit the accelerator by dropping interest rates. If they want to slow the economy up, they hit the brake by increasing interest rates up and which will ultimately slow the economy down.”
“An easing bias means leaning towards the expectation of softer negative news. So they’ve got their hands on the lever to drop interest rates in case they need to push the economy along.”