Interest rate cuts in the United States are unlikely to sway the Reserve Bank of Australia into making a similar decision because of economic differences between the two countries, economists say.

The Federal Reserve, the United States’ central bank, announced a 50 basis point reduction on Thursday, leaving some mortgage holders clinging onto hope the RBA could do the same this calendar year in Australia.

But Richard Holden, a professor of economics at the UNSW Business School, said that there is “zero” chance of Australia doing the same.

“It is important to remember that interest rates in the US have gone a lot higher than they have in Australia, up to 5.5 per cent compared to 4.35 per cent here,” he said.

“The other thing to remember is that inflation has really come down very significantly in the US precisely because of those high interest rates.”

He said inflation in the US is sitting at 2.5 per cent, whereas the trimmed mean inflation in Australia is at 3.9 per cent compared to the RBA’s target of 2.5 per cent.

“We’re quite a distance away from having tamed inflation, but the US has basically already got there,” Holden said.

“It’s time for them to start cutting rates from a higher level than us. We’re still fighting the inflation fight and have some distance to go.”

Jobs and unemployment

New data from the Australian Bureau of Statistics revealed that Australia’s unemployment rate is holding steady at 4.2 per cent while the participation rate, the total proportion of working Australians who are employed or currently job hunting, hit a record high of 67.1 per cent.

John Freebairn, a professor of economics at the University of Melbourne, said that 4.2 per cent unemployment is a “fairly low unemployment rate by Australian standards”.

“We are also in a world of slow productivity growth and a number of unions are pushing for at least 4 to 5 per cent per annum increases in wages,” he said.

“You’ve got not much more than 1 per cent productivity growth, that might be optimistic, then you are pushing prices up by 3 per cent plus, so the labour market pressures are pretty much on keeping inflation where it is and that is not what the bank wants.”

Freebairn agreed that the RBA is unlikely to cut rates because of the Federal Reserve decision.

“Unless there is a big drop in measured inflation and an unexpected blowout in unemployment, they are going to hang onto the current rate,” he said.

“The truth in the matter is the rate is still low by comparison to the United States and most of the other developed countries.”

Criticisms

The RBA has come under fire for its decision to hold off on cutting rates from politicians and the community alike, but has held firm in the face of proposed changes to its structure.

Robert Breunig, an economist from Australian National University, said this type of commentary is “unfortunate”.

“It undermines the RBA as an independent institution, which has a very clear mandate to keep inflation within a 2 to 3 per cent range that is consistent with the full employment in the economy,” he said.

“Australians are lucky to live in a country with such a great central bank.”

Bruenig said that Australians have had “very low” interest rates for the past 20 years. Photo: Getty

He said that any future rate cuts will depend on future inflation figures and the government budget.

“In Australia, most people are on variable-rate mortgages, but in the United States most people are on a fixed rate,” Breunig said.

“When interest rates go up in Australia, they affect everybody because their variable rate goes up. But when they go up in the US, they only affect people who are new buyers in the market and are trying to borrow money, affecting a smaller number of people.”