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Signs point to rate cut in October

Signs point to rate cut in October

by Reporter 0 comments

Staff Reporter

A convincing argument for the Reserve Bank of Australia (RBA) to cut rates next week has been presented amid falling iron prices, lack-lustre job data and the delayed impact of previous rate cuts.

The price of iron ore, a key Aussie export consumed by Chinese steel mills, tumbled well below the $US110 per ton floor thought necessary for many mining projects to remain viable.

Job vacancies rose over the past quarter, in seasonally adjusted terms, which gives the Reserve Bank more room to move on interest rates next week.

New figures released by the Australian Bureau of Statistics revealed there were 179,300 total job vacancies in the three months to August 2012, an increase of 4.2 per cent since May.

Alexandra Knight, an economist from NAB said after the previous rate decision that weak job data may cause the RBA to reduce the cash rate sooner rather than later.

“Rising frictional unemployment is still a potential trigger for an end of year rate cut," he said.

Shane Oliver also speculated that we would see another cut before the years end.

“I expect to see the Reserve Bank cut the cash rate to 2.75 per cent within six months, starting with a 0.25 per cent cut in October or November,” he said earlier this month.

Yet others believe that even if lower rates come, households and savers will have to wait a little longer.

"The RBA certainly take their time assessing the data so if we have to choose a month we think they will have to go in November," said Commonwealth Bank senior economist, John Peters.

In addition, the Australian dollar has remained above parity with the US dollar which also helps the case for a rate cut on Tuesday.

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Signs point to rate cut in October
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