RBA must give SMEs some relief with rate cut

There are suggestions today from some commentators that the Reserve Bank may consider postponing cutting rates at its board meeting tomorrow because of the strength of business investment.

There are suggestions today from some commentators – including Alan Kohler (see Could soaring business investment delay rate cut?) – that the Reserve Bank may consider postponing cutting rates at its board meeting tomorrow because of the strength of business investment.

The RBA should forget such considerations. SMEs are being pummelled by the rapidly slowing economy and desperately need rates to fall by at least 0.25% so they can get a bit of breathing space.

Last week’s business investment intentions survey, which showed business investment is forecast to rise by an incredible 34% in the current financial year, was a big shock to many economists and immediately forced them to rethink predictions that rates would be cut by as much as 0.5% at tomorrow’s meeting.

That’s fair enough – a 0.5% cut always looked like a big move, given inflation still remains stubbornly about 4% and there is plenty of life left in the mining and construction booms.

But postponing a rate cut completely would only increase the pain for struggling SMEs and householders.

Last week’s Sensis Business Index showed the extent of the damage. Confidence among SMEs is at the lowest point in 15 years, one in five SMEs are worried about work drying up and 14% have been forced to lay off staff in the last three months.

Big mining companies and engineering firms might still be doing well, but SMEs are getting smashed and the RBA cannot ignore their plight.

It’s time you voice your concern about interest rates and let the RBA know just how much entrepreneurs are hurting. Take our very quick SmartCompany poll and we’ll publish the results in tomorrow’s edition, just before the RBA announces its decision.

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