Economists tip RBA rate cut tomorrow, but some dissent

Economists are divided on whether the Reserve Bank will cut interest rates tomorrow, with some expecting the board to hold off and cut rates in December.

However, business groups including retailers have put more pressure on the RBA to reduce the official cash rate even further in order to provide confidence to struggling small business.

According to a survey of 15 economists conducted by Australian Associated Press, 12 believe the RBA will cut the official rate by 25 basis points. This will leave the official rate at 3%.

Economists have pegged lower commodity prices, poor international markets and sluggish consumer confidence as reasons to cut the rate. AMP economist Shane Oliver has also pointed out the slowing growth in the mining sector may nudge the RBA to act.

The RBA has emphasised the international markets in its previous statements.

The RBA cut rates last month, dropping the official rate to 3.25%. It was the fifth cut in the past year.

However, Westpac chief Gail Kelly has said tomorrow’s decision is “very much a line ball call”.

“If not tomorrow, then probably December,” she told reporters this morning. That view lines up with some of the other major institutions, including CommSec.

“I think we are definitely in an environment where declining interest rates is the likely outcome, and certainly would be very beneficial for consumer confidence and consumer sentiment,” she said.

The statements come after last week’s TD Securities inflation gauge showed consumer prices rose by 2.4% in the month to October, well within the RBA’s target band of 2-3%.

TD Securities head of Asia-Pacific research, Annette Beacher, also said there is some question as to whether the RBA will move tomorrow or next month.

“Combined with stability in global markets, a bounce in iron ore prices and better activity and survey data from number one trading partner China in recent weeks, it adds to the case for ‘wait and see’ for the RBA board meeting tomorrow,” she said.

 

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