Slade
11-08-08, 11:55 PM
This article was posted yesterday in the Australian... so what do we think?
Rate cut likely next month | The Australian (http://www.theaustralian.news.com.au/story/0,25197,24163542-12377,00.html)
AN official interest rate cut is looking increasingly likely next month after the Reserve Bank of Australia indicated economic conditions are likely to get worse.
However, consumers are unlikely to get any relief from rising cost of living pressures with the RBA jacking up its inflation forecast for this year to 5.0 per cent.
The annual consumer price index (CPI) was 4.5 per cent in the year to June.
"The evidence to date is that a significant moderation in demand is now occurring, and it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, in the period ahead,'' the central bank said in its quarterly monetary policy statement released today.
The RBA has slashed its gross domestic product (GDP) forecast to just two per cent this calendar year and 2.25 per cent for the 12 months to June next year.
This compares with 3.6 per cent GDP growth in the year to March.
"We shouldn't be surprised that the global oil shock and the global credit crunch - together with eight official rate rises in three years - are impacting on our economy,'' Treasurer Wayne Swan told the Global Foundation.
"Like the rest of the world, we haven't been immune from these global difficulties.
"In a globalised economy we don't expect a smooth rise. But we are better placed than most other countries to withstand the fallout.''
However, the RBA also sounded a warning that any further deterioration in the global economy would be a significant risk to Australia if it led to a marked slowing in growth in China and India.
"This could lead to a significant deterioration in the outlook for the Australian economy and commodity markets,'' the RBA said.
Financial markets are fully pricing in a quarter percentage point cut in the central bank's 7.25 per cent cash rate at the September 2 board meeting, with modest chance of a half a percentage point move.
"Past experience suggests that once the bank has made up its mind, it tends not to wait too long before acting, especially when it probably discussed cutting rates this month,'' ABN AMRO chief economist Kieran Davies said.
The RBA expects slowing demand will bring a significant reduction in inflation over time, although it still expects the CPI will remain above the two to three per cent target until June 2010.
Still, it remains unclear whether retail banks will pass on any cut by the central bank.
The federal government has repeatedly urged the banks to toe the line and cut rates by the same margin, but the banks say they can't guarantee anything at this stage.
An Essential Research survey found four in five people believe banks should be required by law to cut their mortgage rates by the same amount as the RBA.
"This suggests that the public would support government intervention that would regulate the industry and protect the general public against rate rises by banks,'' Essential said.
However, the RBA says those funding pressures are now easing.
Federal opposition treasury spokesman Malcolm Turnbull expects the banks will pass on any reduction.
"Their need to do so is underlined by the reserve bank's observation ... that their wholesale funding costs are easing,'' Mr Turnbull told reporters in Sydney.
Rate cut likely next month | The Australian (http://www.theaustralian.news.com.au/story/0,25197,24163542-12377,00.html)
AN official interest rate cut is looking increasingly likely next month after the Reserve Bank of Australia indicated economic conditions are likely to get worse.
However, consumers are unlikely to get any relief from rising cost of living pressures with the RBA jacking up its inflation forecast for this year to 5.0 per cent.
The annual consumer price index (CPI) was 4.5 per cent in the year to June.
"The evidence to date is that a significant moderation in demand is now occurring, and it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, in the period ahead,'' the central bank said in its quarterly monetary policy statement released today.
The RBA has slashed its gross domestic product (GDP) forecast to just two per cent this calendar year and 2.25 per cent for the 12 months to June next year.
This compares with 3.6 per cent GDP growth in the year to March.
"We shouldn't be surprised that the global oil shock and the global credit crunch - together with eight official rate rises in three years - are impacting on our economy,'' Treasurer Wayne Swan told the Global Foundation.
"Like the rest of the world, we haven't been immune from these global difficulties.
"In a globalised economy we don't expect a smooth rise. But we are better placed than most other countries to withstand the fallout.''
However, the RBA also sounded a warning that any further deterioration in the global economy would be a significant risk to Australia if it led to a marked slowing in growth in China and India.
"This could lead to a significant deterioration in the outlook for the Australian economy and commodity markets,'' the RBA said.
Financial markets are fully pricing in a quarter percentage point cut in the central bank's 7.25 per cent cash rate at the September 2 board meeting, with modest chance of a half a percentage point move.
"Past experience suggests that once the bank has made up its mind, it tends not to wait too long before acting, especially when it probably discussed cutting rates this month,'' ABN AMRO chief economist Kieran Davies said.
The RBA expects slowing demand will bring a significant reduction in inflation over time, although it still expects the CPI will remain above the two to three per cent target until June 2010.
Still, it remains unclear whether retail banks will pass on any cut by the central bank.
The federal government has repeatedly urged the banks to toe the line and cut rates by the same margin, but the banks say they can't guarantee anything at this stage.
An Essential Research survey found four in five people believe banks should be required by law to cut their mortgage rates by the same amount as the RBA.
"This suggests that the public would support government intervention that would regulate the industry and protect the general public against rate rises by banks,'' Essential said.
However, the RBA says those funding pressures are now easing.
Federal opposition treasury spokesman Malcolm Turnbull expects the banks will pass on any reduction.
"Their need to do so is underlined by the reserve bank's observation ... that their wholesale funding costs are easing,'' Mr Turnbull told reporters in Sydney.