posted at 22:50
Author Name: Glenda Kwek
Rate cut calls grow as Australian economy falters
The Reserve Bank of Australia has repeatedly said it will continue to maintain a "Period of stability in interest rates", but softening GDP growth figures last week sparked a flurry of economists forecasting further monetary policy easing. The data showed the economy expanded by just 0.3 percent in the third-quarter, far below consensus estimates of 0.7 percent, to take the annual growth rate to a below-trend 2.7 percent. Just last week, the exchange rate slumped to a fresh four-year low after weak manufacturing figures raised concerns about China's growth outlook. The new forecasts are in part driven by a plunge in commodity prices and the lack of a similar decline in the exchange rate to soften the blow. While record low interest rates have fuelled a surging housing market, consumer confidence has floundered amid tepid wages growth and following a tough federal budget in May in which the government pledged to cut back on welfare and spending. Deutsche Bank, Goldman Sachs and Westpac Bank all last week forecast 50 basis points of cuts next year to take the cash rate down to 2.0 percent. A lower cash rate could also help make the Australian dollar less attractive to investors and thus weaken the exchange rate, especially if commodity prices continue to tank, McIntyre said. HSBC's chief economist for Australia Paul Bloxham, who continues to forecast an extended period of unchanged rates, warned commentators needed to be careful not to overstate the impact of falling commodity prices.

Posts Archive