It seems the RBA has responded to concerns about weaknesses in the household sector of the economy by deciding to cut official interest rates by 25 basis points reducing official interest rates to 7.00 per cent.
The RBA move comes at a time when the economic landscape is dominated by mixed and often conflicting economic news. Whilst retail trade activity has been weak and consumer confidence has fallen to levels last characterised by a recession, the business sector continues to invest and corporate sales and profits remain surprisingly robust according to recently released economic data.
The decision to reduce official interest rates represents the first such reduction since December 2001 and brings to an end 12 consecutive interest rate increases which resulted in official interest rates rising from 4.25 per cent to 7.25 per cent between May 2002 and March 2008.
Hagop Tchamkertenian, national manager for policy and government affairs for Printing Industries welcomed the RBA decision saying it should give the printing and associated industries a welcome boost.
He says, “For an industry that relies on consumer spending and sells most of its output to sectors that are either sensitive or very sensitive to movements in interest rates, interest rate cuts are always a welcome development.”
However, Tchamkertenian warned that given the recent prolonged period of interest rate increases it may take at least another cut in official interest rates before noticeable improvements are observed in both consumer confidence and spending.
He says, “While the RBA move has acknowledged that the household sector of the economy is doing it tough and requires a boost, consumers may be reluctant to increase consumption expenditure until they are confident that the economy has entered a downward interest rates cycle.”
Tchamkertenian continues while the RBA remains confident inflation will fall below three per cent during 2010, future wage outcomes will determine whether the latest rate cut will be followed by others.
“The RBA has once again put everyone on notice that while it is cutting interest rates to respond to weakening consumer demand, it remains committed to bringing inflation down to within the two-three per cent target range. In the event of wage pressures persisting, the RBA may decide that monetary policy settings should not become less restrictive.”
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