News

RBA cuts cash rate to 3.5pc, more to come

Beef Central, 05/06/2012

 

The Reserve Bank board this morning lowered the cash rate by 25 basis points to 3.5pc, as widely predicted earlier in finance sector circles.

The National Farmers’ Federation welcomed the adjustment, calling on financial lenders to pass the full 0.25 percent reduction to their agribusiness customers.

“For the second month in a row, we’ve seen a rate cut by the Reserve Bank in the official cash rate, yet farmers and agricultural businesses are not reaping the benefits,” NFF’s chief executive Matt Linnegar said.

Last month, the NFF’s Agribusiness Loan Monitor showed that in the week following the RBA decision, only one bank made any reduction in their agribusiness loan rates.

“This month, we hope that the monitor will show a reduction in rates across the board from the financial lenders, taking into account the significant cuts made by the RBA during this period,” Mr Linnegar said.

“Like all business owners, farmers cannot afford to miss out on interest rate cuts designed to boost the weakening economy and encourage spending growth.

“In fact, just this week we have heard reports that rural confidence has slumped in the last quarter as a result of lower commodity prices, a sustained high A$ and an increase in farm input costs.

“And, with the Government’s carbon tax set to be introduced from July 1, which the Government’s own ABARES has shown will add significant costs into our farming businesses, now is the time for some positive news for the farming sector,” Mr Linnegar said.

“Today’s decision by the RBA is welcome news for farmers as it eases some of the pressure – but only if banks pass the rate cuts on.”

Westpac chief economist Bill Evans indicated that contrasts in statements issued with the RBA’s adjustments in May and June, including observations around the domestic and world economy, suggested that the RBA was prepared to cut rates significantly further.

“On the international front, whereas in May the Governor said that ‘financial market sentiment has generally improved’ he now notes that ‘financial market sentiment has deteriorated’,” Mr Evans said.

The Governor’s June commentary also said ‘spreads have increased’ and ‘long-term interest rates faced by highly-rated sovereigns have fallen to exceptionally low levels.’

He also refers to further weakening in Europe, and appears to be more concerned about economic conditions in Europe, than in the US, including further moderation in growth in China. The RBA for the first time raises the prospect that the slowdown in China could dampen growth in the rest of Asia.

Growth in Australia is now described as ‘moderate’ compared to ‘below trend’ in the May statement.

While Westpac has consistently highlighted the impact of the cautious consumer on the economy, the RBA has not always recognised that factor. However a clear emphasis is given in the Governor’s statement: ‘both households and businesses continue to exhibit a degree of precautionary behaviour which may continue in the near-term’.

The big data surprise since the May meeting was the fall in the Australian unemployment rate from 5.2pc in March to 4.9pc in April. The Governor takes little comfort from this describing labour market conditions as having ‘firmed a little’.

No new data is available on inflation but the Governor does raise the cautionary note that ‘over the longer-term, low inflation will require growth in domestic costs to slow as the effects of the earlier high exchange rate wane’. However he does confirm the forecast that inflation is expected to be in the 2-3pc range over the coming year or two.

At this stage, Westpac is forecasting a further 0.25pc cut in both July and August, with a final 0.25pc move in the December quarter. 

 

 

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