RBA leaves interest rates unchanged despite small business concern

The Reserve Bank has matched economists’ expectations by leaving the cash rate unchanged at 4.25%, saying information on the nation’s economy “continues to suggest growth close to trend”.


RBA governor Glenn Stevens said while the global economy is expected to grow at a below-trend pace this year, recent information does not suggest that a deep downturn is occurring.


“Several European countries will record very weak outcomes, but the US economy is continuing a moderate expansion,” Stevens said in a statement.


“Growth in China has moderated…but on most indicators remains quite robust overall. Conditions around other parts of Asia softened in 2011, partly due to natural disasters.”


Stevens said the financial pressures on European banks have been “alleviated considerably” by the actions of policy-makers, but more needs to be done to put them onto a “sound footing”.


With regard to the national economy, Stevens said most information continues to suggest growth close to trend overall, with differences between sectors and considerable structural change.


“Labour market conditions softened during 2011 and the unemployment rate increased slightly in mid year, though it has been steady over recent months,” Stevens said.


“Interest rates for borrowers have generally risen slightly since the board’s previous meeting, but remain close to their medium-term average. Credit growth remains modest.


“With growth expected to be close to trend and inflation close to target, the board judged that the setting of monetary policy remained appropriate for the moment.”


The latest Dun & Bradstreet survey shows businesses are keeping a close eye on rates, with more than a third expecting rates to be the biggest influence on operations over the coming quarter.


Dun & Bradstreet’s National Business Expectations Survey is based on the responses of 1200 business owners and senior executives, representing major industry sectors across the country.


According to the survey, concern over interest rates rose by nearly 10 points since last month, with unease most noticeable among retail businesses.


In addition to interest rates, the survey shows more than a third of businesses are concerned about the consistently high Australian dollar.


More than a third of the businesses surveyed expect the high dollar to hurt their operations in the June quarter, up nearly 40% on last month.


Dun & Bradstreet chief executive Gareth Jones says businesses continue to remain cautious in response to increasingly conservative consumers and the relatively high local currency.


“This caution amongst businesses is increasingly being seen through a focus on consolidation rather than growth,” Jones says.


“Small businesses in particular appear to be focused on maintaining profitability and cashflow by improving margins through, for example, paring back operational costs.”



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