Printers will benefit from interest rate cut: Printing Industries

For the second consecutive month the Reserve Bank has cut official interest rates. The decision to cut official interest rates by a massive 100 basis points effective from Wednesday 8 October follows the 25 basis points cut announced last month and lowers official interest rates to 6.0 per cent – their lowest level since August 2, 2006. The latest rate cut represents the largest rate reduction since May 1992.

Concerns about weakening economic growth and deteriorating financial markets as a result of the global credit crunch persuaded the RBA to significantly loosen the monetary policy settings.

The RBA statement predicted that financing would continue to be difficult globally but that Australia should be affected less due to the relative strong local banking system.

Hagop Tchamkertenian, national manager for policy and government affairs for Printing Industries says the larger than expected rate reduction should provide some stimulus to domestic economic activity, or, at the very least, stop the slide in consumer sentiments.

He says, “Printing companies will gain directly through a lower refinancing cost. Improved consumer sentiment, particularly in the mortgage belt, should have a positive, direct flow-on to retail spending which will also impact on promotional, advertising and packaging print.”

The last time official interest rates were cut by the RBA the banks passed on the full rate reduction to their customers, something not expected to happen with today’s expected interest cut.

Tchamkertenian adds, “However, this time around the RBA has gone for a larger rate reduction which would allow banks to pass-on some of the rate cut to their customers and use the rest to help offset the rising cost of borrowings.”

He continues it would be a concern if the link between official interest rates and market interest rates started to break down.

“The RBA has used monetary policy as an effective demand management tool. However if monetary policy becomes less effective, then the other arm of demand management – fiscal policy – which is administered by governments might increase in significance.”

He concludes, “I think the RBA saw the danger that a small rate cut of say 50 basis points may not have been passed on by the banks and decided instead to go for a much larger rate cut.”

Comment below to have your say on this story.

If you have a news story or tip-off, get in touch at editorial@sprinter.com.au.  

Sign up to the Sprinter newsletter

Leave a comment:

Your email address will not be published. All fields are required

Advertisement

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.
Advertisement