RBA RATE HOLD BRINGS MIXED RESPONSE FROM BUSINESSES

Written on the 3 April 2012

RBA RATE HOLD BRINGS MIXED RESPONSE FROM BUSINESSES

THE Reserve Bank of Australia’s (RBA) decision to leave the cash rate unchanged at 4.25 per cent has brought a mixed response from business groups.

Governor Glenn Stevens reveals the world economy is tipped grow at a below-trend pace this year, but there is nothing to suggest a deep downturn is imminent.

“Several countries in Europe will record very weak outcomes, but the United States economy is continuing a moderate expansion. Growth in China has moderated as was intended and is likely to remain at a more measured and sustainable pace in the future,” he says in a written statement.

“Conditions around other parts of Asia softened in 2011 partly due to natural disasters, but are not showing signs of further deterioration … Commodity prices declined for a few months last year and are noticeably off their peaks, but have been relatively stable for a while now at quite high levels.”

However, the Construction Forestry Mining and Energy Union (CFMEU) warns it will hold the RBA Board responsible for thousands of potential job losses.

CFMEU national secretary Michael O’Connor points to the latest Australian Industry Group-Price Waterhouse Coopers Performance of Manufacturing Index, which shows activity in the sector fell 1.8 points to 49.5 during March compared to February.

“A reading below 50 suggests contraction in the industry. If the RBA continues to twiddle its thumbs, we are going to see manufacturing, retail, tourism and other vital sections of the economy experiencing a severe downturn (and job losses),” he says.

“The pressure applied by Australia’s comparatively monstrous interest rates has forced key sectors of the economy to breaking point … they desperately need some relief or they will go over the edge.”

Stevens defends the RBA’s decision by describing the 4.25 per cent base interest rate as ‘close to the medium-term average’.

“The Board eased monetary policy late in 2011. Since then, its judgement has been that with growth expected to be close to trend, inflation close to target and lending rates close to average the setting of monetary policy was appropriate,” he says.

“At today's meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation before considering a further step.”

Ray White welcomed the rates decision calling it in-line with the domestic property market. Group chairman Brian White considers the real estate network’s strong March turnover to be a positive sign for the broader market.

“March figures were a pleasant surprise, suggesting that the RBA's decision to keep rates on hold was not imprudent,” he says.

“It is the final wrap up of summer trading. Rarely will our figures come close to March until (we are) well into spring. So the group’s incomplete sales results of $2.4 billion gives confidence that the Australian market is assuming a new resilience.”


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