RBA eyes February rate cut

RBA eyes February rate cut

09 January 2012 by Staff Reporter 0 comments

Staff Reporter

It now seems all but certain that the Reserve Bank of Australia will cut the official cash rate again in February.

According to recent domestic data, there is a real need for another rate cut, with both consumers and businesses remaining extra cautious about borrowing.

Another rate cut would take the official rate to just four per cent – 100 basis points above the historic low.

Research by AMP found personal credit rose marginally by 0.1 per cent in November but remains down 1.1 per cent over the year.

"Australian consumers appear to have minimal interest to borrow for spending purposes or to acquire assets," AMP's senior economist Bob Cunneen said.

"Housing credit is more solid (November 0.5 per cent) but annual growth at 5.7 per cent is still a fraction of the 15 per cent pace set in the decade prior to 2007.

"Business credit was flat in November and has barely expanded by 0.9 per cent over the past year. This sluggish corporate borrowing arguably also reflects a preference to use retained earnings rather than use external funding sources.

"With that in mind, we believe the RBA will lower Australia's official cash rates by a further 0.25 per cent to four per cent in February."

Excessive pressure from the European debt crisis and rising unemployment levels in Australia will likely force the RBA to lower rates in February, Raine and Horne chief executive Angus Raine said.

“With Europe still in economic turmoil and an expected hike in unemployment, this will put the Reserve Bank of Australia under significant pressure to reduce rates when it meets again in February," he said.

Staff Reporter

It now seems all but certain that the Reserve Bank of Australia will cut the official cash rate again in February.

According to recent domestic data, there is a real need for another rate cut, with both consumers and businesses remaining extra cautious about borrowing.

Another rate cut would take the official rate to just four per cent – 100 basis points above the historic low.

Research by AMP found personal credit rose marginally by 0.1 per cent in November but remains down 1.1 per cent over the year.

"Australian consumers appear to have minimal interest to borrow for spending purposes or to acquire assets," AMP's senior economist Bob Cunneen said.

"Housing credit is more solid (November 0.5 per cent) but annual growth at 5.7 per cent is still a fraction of the 15 per cent pace set in the decade prior to 2007.

"Business credit was flat in November and has barely expanded by 0.9 per cent over the past year. This sluggish corporate borrowing arguably also reflects a preference to use retained earnings rather than use external funding sources.

"With that in mind, we believe the RBA will lower Australia's official cash rates by a further 0.25 per cent to four per cent in February."

Excessive pressure from the European debt crisis and rising unemployment levels in Australia will likely force the RBA to lower rates in February, Raine and Horne chief executive Angus Raine said.

“With Europe still in economic turmoil and an expected hike in unemployment, this will put the Reserve Bank of Australia under significant pressure to reduce rates when it meets again in February," he said.

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