by Duncan Murray
SYDNEY, June 4 (Xinhua) -- The Reserve Bank of Australia's (RBA) decision to cut the country's interest rate from 1.5 percent to 1.25 percent on Tuesday came as little surprise to many observers who have been confidently predicting the move for months.
Head of Australian macro-economics at BIS Oxford Economics, Sarah Hunter told Xinhua that financial markets, including the Australian dollar, had already fully priced in the move and are in fact anticipating further cuts before the end of the year.
Last month, the Aussie dollar dropped to its lowest levels in three years under the weight of impending cuts, around which time the RBA was strongly signalling the move including in a speech by RBA governor Philip Lowe.
The rate action is the first during Lowe's tenure as governor, previously remaining on hold since August of 2016.
According to Hunter, the reason for the cut is "pretty clear".
"Despite the strong employment growth, we've not seen wage growth pick up substantially and inflation has continued to undershoot the 2-3 percent target band," Hunter said.
"So they signalled that they feel they need to generate stronger employment growth, and that this is necessary to then feed through into wage growth and for them to hit their 2-3 percent inflation target," Hunter said.
Hunter says that in almost all developed economies, while employment growth has beaten expectations, wages growth has disappointed and inflation has not been as robust as hoped.
"In the context of central banks needing to hit inflation targets, which is what the RBA and other developed economies central banks are mandated to do, in that regard they're acting entirely consistently with their mandate," Hunter said.
For Australians, the true impact will depend on the actions of the banks, which are expected to reduce their variable interest rates, potentially saving customers thousands of dollars over the term of a loan.
"This rate cut will be welcome news for Australian households and businesses and it will mean lower mortgage costs and lower interest payments," Australian treasurer Josh Frydenberg said.
Hunter says that based on inflation and employment data, she fully expects there will be further cuts in the near future.
"I think we'll get another one fairly soon, certainly within the next three months, and I think we'll probably see a third one again before the end of the year," Hunter said.
"I think global conditions are deteriorating quite markedly at the moment with the ramping up of tariffs, and given that, I think that we will see some additional rate cuts to provide support against the negative global headwinds that is going to create," Hunter said.
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