Rates set to remain on hold

Interest rates are likely to remain on hold today as policymakers continue to work through the economic impact of the Queensland floods.

 

According to a Bloomberg News survey of 22 economists, the Reserve Bank of Australia will leave the overnight cash rate at 4.75% as the economy comes to terms with the disaster.

 

Westpac chief economist Bill Evans says the economy was subject to a “pretty brutal” interest rate regime last year, which should influence the RBA’s decision.

 

“With this uncertainty about will the economy contract, will that have an impact on confidence – there are lots of reasons to hold off rising rates,” Evans says.

 

Westpac Banking Corp chief executive Gail Kelly is urging the RBA to keep interest rates on hold to protect struggling businesses amidst continued economic uncertainty.

 

Kelly told CNBC US Television that Australia’s resources sector has been a “very major underpinning of the [country’s] overall economic strength… and we see that [continuing] for several years to come.”

 

“On the other hand, anything to do with manufacturing and exports has done it tough, and tourism has done it tough as well.”

 

Kelly said rates should remain on hold to protect Australia’s ailing retail sector.

 

“Businesses are waiting to see the consumer start to spend again and that didn’t really happen over the Christmas period, and I am hoping that rates remain on hold for awhile,” she said.

 

The latest Roy Morgan research reveals consumer confidence has fallen by 1.9 points, meaning consumer confidence is now seven points lower than a year ago.

 

According to Roy Morgan, the fall has been driven by Australians’ increasing concerns about their financial situation in the wake of the floods.

 

With regard to personal finances, 29% say their family is ‘worse off financially’ than a year ago, up 3% on a year ago, while the number of Australians who say their family is ‘better off financially’ has fallen by 1% to 32%.

 

The report also shows 16% of Australians expect their family to be ‘worse off financially’ this time next year, an increase of 4%.

 

Roy Morgan executive chairman Gary Morgan says the Federal Government’s flood levy may have contributed to the downfall in consumer confidence.

 

“Increasing talk of a flood levy on taxpayers, to help pay for the projected multi-billion dollar rebuilding of infrastructure required in Queensland, may have caused these two indicators to rise this week,” Morgan says.

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