Interest rates set to be cut: RBA poised to admit mistakes

Rate cut imminent as RBA faces reality

The Reserve Bank of Australia (RBA) is likely to cut interest rates on Tuesday, in a major backflip that will see the central bank admit it has been too slow to react to the economic slowdown.

The RBA has kept the cash rate on hold at 0.75 per cent since August 2016, despite mounting evidence that the economy is slowing and inflation is well below its target of 2-3 per cent.

Economists now widely expect the RBA to cut the cash rate to 0.5 per cent on Tuesday, with some even predicting a cut to 0.25 per cent.

The RBA's inflation problem

The RBA has been reluctant to cut interest rates because it is worried about stoking inflation.

However, inflation has remained stubbornly low, and the RBA is now facing pressure from the government and businesses to do more to stimulate the economy.

The risks of a rate cut

There are some risks associated with cutting interest rates.

A rate cut could further weaken the Australian dollar, which would make it more expensive for Australians to buy imported goods.

A rate cut could also lead to a rise in inflation, if it encourages businesses to raise prices.

The benefits of a rate cut

However, there are also some benefits to cutting interest rates.

A rate cut would make it cheaper for businesses to borrow money, which could lead to increased investment and job creation.

A rate cut would also make it cheaper for households to borrow money, which could lead to increased spending and economic growth.

The RBA's decision

The RBA will need to weigh up the risks and benefits of a rate cut before making its decision on Tuesday.

However, it is increasingly likely that the central bank will cut rates, in a major admission that it has been too slow to react to the economic slowdown.