Economic figures released ahead of the central bank’s monthly board meeting have failed to deliver a clear-cut case for an interest rate cut, but business believes a further reduction is needed now.
Financial markets are priced for a less-than a 50 per cent chance of the Reserve Bank of Australia (RBA) making another 25 basis point reduction that would take the cash rate to 3 per cent, following up on the cut in October.
But most economists expect the central bank to keep up the tradition of altering the cash rate on Melbourne Cup Day for a seventh straight year, and what would take the cash rate to the trough seen during the 2008-09 global financial crisis (GFC).
Acting Treasurer Penny Wong wouldn’t speculate on decisions taken by the independent RBA.
“But the government’s fiscal discipline has given the RBA maximum room to cut interest rates if they think it’s appropriate to do so,” Senator Wong, who is finance minister, said.
Australian Chamber of Commerce and Industry (ACCI) director of economics and industry policy Greg Evans believes business needs another rate cut now.
“If not tomorrow, certainly December,” he said.
“The economy could well stall if the Reserve Bank decides to leave rate cuts until what would be February next year.”
The RBA does not hold a board meeting in January.
The ACCI business expectations survey for the September quarter, released yesterday, showed conditions continuing to deteriorate.
The business conditions index was 43.6 points, down from 44.4 in the previous quarter and staying below the 50-point level that separates growth from contraction.
More worrying was a fall in the expected economic performance index to 41.1 points, from 43.1.
“There seems to be an ingrained pessimism in Australian business,” Mr Evans said.
Weak business sentiment has hit demand for workers with the ANZ job advertisement survey falling for a seventh month in a row in October, plunging by 4.6 per cent.
Shadow treasurer Joe Hockey said the figures “continue to show a pretty disappointing picture of the Australian economy”.
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