July interest rate cut shouldn’t be ruled out

July interest rate cut shouldn’t be ruled out

Posted on Tuesday, June 26 2012 at 11:04 AM

Despite the Reserve Bank of Australia (RBA) Board indicating in its recent minutes that a July rate cut was highly unlikely following better than forecasted domestic economic conditions, mortgage holders shouldn’t rule it out, said Westpac Institutional Bank chief economist Bill Evans.

This could have something to do
with the March quarter GDP (gross domestic product) report released shortly
after the June meeting of the RBA, which detailed economic growth of 1.3 per
cent in Australia, mostly driven by consumer spending, said Evans

“Other components were quite weak with residential investment, equipment
investment, commercial building, exports and hours worked all contracting,” he

However what might urge the
Board to move the cash rate next week, Evans said, despite all of its “clear
intentions as indicated in the minutes”, are the global financial challenges
continuing to play a role in reduced business confidence, unemployment rising
from five per cent to 5.1 per cent nationally, the reported 12.6 per cent
plunge in new dwelling commencements for the March quarter and global bond
rates refusing to “step down”.

“Our argument that financial conditions are hardly stimulatory, interest
rate sensitive parts of the economy are struggling, inflation is low and that
global uncertainty will continue to undermine confidence, still support our
forecast of a further 75 basis points in RBA rate cuts,” said Evans.

“We expect the confirmation of low inflation will prompt the Board to
cut by 25 basis points following the meeting in August. A follow up move in
September now seems probable with a further ‘post CPI’ (consumer price index)
adjustment in November still likely.”

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