The RBA justified its decision on information it has received in recent months suggesting that economic conditions have been somewhat weaker than expected, while inflation has moderated. Growth in the world economy is also expected to be below trend in 2012 with Europe remaining a potential source of adverse shocks for some time yet.
Hagop Tchamkertenian, national manager for policy and government affairs at Printing Industries welcomed the interest rate decision describing it as a much needed boost to economic activity.
He says, “With economic conditions remaining patchy in the printing industry according to official data and our own research via the Printing Industry Trends Report, today’s decision is a timely one for our industry.
“I still believe the RBA should have cut interest rates much earlier given the modest economic conditions in the non-mining segments of the economy. However they wanted to see the inflation data before making today’s decision to cut and I think the weak inflation data convinced them that economic growth was in danger of remaining below trend growth if they did not act.”
Tchamkertenian also warned that there could be some downside risk for the printing industry associated with the interest rate reduction. He explains that the Australian dollar fell ahead of the interest rate decision in anticipation of a rate cut and again immediately after the decision.
If the currency trades lower over the coming months, that will have a detrimental impact on imported consumables and technology used by the printing industry, according to Tchamkertenian.
He says, “The RBA was concerned that the banks may lessen the stimulatory impact of today’s cash rate cut and as a consequence it decided to cut official rates by 50 basis points. The banks should now pass on most if not all of the cuts to their customers.”
Tchamkertenian adds if the banks fail to pass on the full interest rate reduction then the RBA, after reviewing economic conditions, may decide to ease monetary policy further over the coming months.
He says, “If economic conditions do not improve noticeably and provided the RBA remains comfortable with the trend in underlying inflation, there may be further interest rate cuts in the current cycle.”
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