The Australian central bank is facing mounting pressure to cut official interest amidst a back drop of worsening consumer and business sentiment, with global financial markets fearing the unfolding of the latest stage of the European sovereign debt crisis.
The futures market is pricing in a 25 basis point cut next month as being almost certain, with certain captains of industry suggesting that in response to a slower economy the RBA may slash rates by as much as 75 basis points by the end of the year.
An increasing number of business groups and unions are urging the central bank to be more proactive and cut the official interest rate by as much as 50 basis points.
Peter Anderson, chief executive of the Australian Chamber of Commerce says that in response to the slump in consumer spending, Australian businesses were desperate for a rate cut.
“The time has come for Australia’s central bank to move decisively to cut rates by a full half a percent, and for the retail banks to immediately pass it on,” he said.
Matthew Hassan a senior economist with Westpac says that poor consumer sentiment suggest that if the economy is to regain robust growth, at least one interest rate cut was needed.
Many economists have cut this year’s growth projections for the Australian economy, which is expected to expand by less than 3 per cent.
Most forecasters have cut their growth projections this year, with the economy expected to grow at less than 3 per cent.
“We have thought over the year that while there is the strength from the mining sector and the investment boom that a lot of the economy is deleveraging. The negatives in the economy are creating more of an impact that the positives. Our view is that interest rates should be lower to be providing additional support to the economy’s medium-term growth outlook.” Mr. Hassan said.
According to Mr. Hassan, a 50 basis point cut by the central bank is unlikely, since it would spook financial markets which would view the move as an emergency rate cut.
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