RBA prepared to make more rate cuts: Economy roundup

The Reserve Bank of Australia saw no “pressing need” to cut interest rates this month due to signs the economic downturn is beginning to stablise, but warns more cuts can be made if necessary.

The minutes of its latest meeting show that the RBA chose to keep the official interest rate at 3% for a second consecutive month, after having cut the rate by 425 basis points over the past eight months.

“Board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for some further easing of monetary policy, if that were to be needed to support demand at a later stage,” the minutes showed.

The RBA said that the easing of the economy, together with stimulus action by the Government, “represented the largest macro-economic policy stimulus over recent decades”.

The RBA board also felt that as the effects of any stimulus have yet to be determined, maintaining the current interest rate would allow the economy to grow, keep inflation low and leave room to respond to further events that may unfold.

Additionally, the board found that the latest economic data showed the Australian economy is suffering less pain than other developed nations, with its liaisons with retailers suggesting sales remain relatively strong.

Meanwhile, the Australian share market has opened lower today after the US market fell due to worse-than-expected manufacturing data.

The benchmark S&P/ASX200 was down 31.9 points or 0.8% to 3999.8 at 12.15pm AEST. The Australian dollar also opened lower to US80 cents.

NAB shares fell by 0.5% to $22.08, with ANZ falling 1.4% to $17.05. Westpac gained by 0.9% to $20.04 as Commonwealth Bank gained 0.1% to $38.25.

In the US, Wall Street recorded its worst results in a month due to pessimistic manufacturing data and new plans announced by the Obama administration to regulate credit agencies. The Dow Jones Industrial Average fell 187.13 points or 2.13% to 8612.13.

The New York Federal Reserve’s Empire State index showed the factory sector shrank at a severe rate in June. Alan Lancz, president of Alan B. Lancz & Associates, told Reuters that investors were starting to factor in a “V-shaped recovery”.

“Not only do prices get ahead of themselves, but there’s also a situation where if we don’t get that V-shaped recovery, then you have more than just a temporary pullback. That’s what might scare investors in the more immediate term.”

The markets also fell due to the Obama administration’s plans for introducing credit rating agency reform, seeking for the companies to differentiate between mortgage-backed securities and corporate bonds, a controversial topic on Wall Street.

If the reforms go ahead, companies such as Moody’s and Standard & Poor’s would be forced to introduce new rating systems for financial products linked to mortgages.

Back home, industrial manufacturing group Bosch has said it will make a takeover bid for the remaining shares of brake technology company Pacifica Group that it does not currently own.

Bosch holds 76.6% of the shares of the company, but will make an offer of AU23c a share for the rest of the company’s stake.

“Bosch believes that the offer provides the remaining minority shareholders in Pacifica with a compelling opportunity to receive a cash price for their shares in an environment where the outlook for Pacifica’s earnings in uncertain,” the company said in a statement to the ASX.

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