Rate cut an each way bet

Staff Reporter

Economists are divided over whether the Reserve Bank of Australia (RBA) will cut the official cash rate when the board meets tomorrow.

National Australia Bank’s chief economist Alan Oster said weaker than expected GDP growth “should” encourage the RBA to cut rates at its February board meeting.

“The Australian economy has softened, with leading indicators suggesting the first half of 2013 will be difficult,” he said.

But not everyone agrees.

AMP’s chief economist Shane Oliver said while it is sure to be a close call, the RBA should “err on the side of caution” and keep rates on hold.

“The case for further rate cuts remains strong and I continue to see more cuts in the months ahead,” he said.

“The mining investment boom is slowing rapidly and bank lending rates still look too high to drive a decent recovery in sectors of the economy like housing and retail at a time when the Australian dollar remains strong. Most economic indicators remain well below the average levels they normally attain this far into an interest rate easing cycle.

“Against this, global economic conditions have improved significantly over the past few months, share prices have surged, the iron ore price has rebounded sharply from its lows last year and the tentative signs of an uptick in housing indicators and some confidence measures are likely to encourage the RBA to wait a bit longer to see the impact of past rate cuts.”

Staff Reporter

Economists are divided over whether the Reserve Bank of Australia (RBA) will cut the official cash rate when the board meets tomorrow.

National Australia Bank’s chief economist Alan Oster said weaker than expected GDP growth “should” encourage the RBA to cut rates at its February board meeting.

“The Australian economy has softened, with leading indicators suggesting the first half of 2013 will be difficult,” he said.

But not everyone agrees.

AMP’s chief economist Shane Oliver said while it is sure to be a close call, the RBA should “err on the side of caution” and keep rates on hold.

“The case for further rate cuts remains strong and I continue to see more cuts in the months ahead,” he said.

“The mining investment boom is slowing rapidly and bank lending rates still look too high to drive a decent recovery in sectors of the economy like housing and retail at a time when the Australian dollar remains strong. Most economic indicators remain well below the average levels they normally attain this far into an interest rate easing cycle.

“Against this, global economic conditions have improved significantly over the past few months, share prices have surged, the iron ore price has rebounded sharply from its lows last year and the tentative signs of an uptick in housing indicators and some confidence measures are likely to encourage the RBA to wait a bit longer to see the impact of past rate cuts.”

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