RBA tipped to cut rates today

Updated December 04, 2012 07:12:24

Economists believe weakness in the domestic economy is likely to push the Reserve Bank to cut the official interest rate today, but they do not expect the banks to pass it on in full.

Most economists believe the Reserve Bank will cut the rate by 25 basis points, taking it to the same emergency level of 3 per cent it reached during the global financial crisis.

Rising unemployment, falling resource investment, weaker economic growth and a high dollar are all factors weighing on the RBA.

Recent data has revealed weakness in retail sales, investment and employment.

NAB senior economist Spiros Papadopolous says this month’s decision is focused on the Australian economy.

“We’ve seen in previous interest rate decisions what’s been happening globally has been the bigger driving force behind their decision,” he said.

“But this time around, given that we have seen some stability in the global economy we have seen some better signs coming out of China, I think it’s just a question now of how much stimulus the Reserve Bank thinks the Australian economy needs to get domestic demand up and running again, to help support the sectors of the economy outside of mining that have been doing it quite tough and try and also give a bit of a kick along to business and consumer confidence.”

There are some though who believe the data is not bad enough to prompt the RBA to move and they say it is likely to wait until conditions worsen.

If the RBA does cut, borrowers are not likely to see much relief, with the Australian Bankers Association warning that banks are unlikely to match any move by the central bank.

Topics: banking, business-economics-and-finance, economic-trends, australia

First posted December 04, 2012 06:46:29

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