Australian Broker – Deep RBA cut still not enough
By Adam Smith
Tuesday, 2 May 2012
The Reserve Bank has been called on to move on rates yet again to deliver stimulus to sagging consumer demand.
With the Reserve Bank shocking analysts yesterday by cutting 50bps from the official cash rate, the Bank said it wanted to see lower borrowing rates filter through the economy. But 1300 Home Loans founder John Kolenda has claimed the RBA will need to make yet another cut to jumpstart the economy.
“This is a good start but the RBA will likely need to cut rates again by 25bps over the coming months to really deliver the economic shock treatment the economy has been crying out for,” Kolenda said.
The move came after the Reserve Bank chose to sit on its hand in its first three meetings of 2012. RBA Governor Glenn Stevens defended the Bank’s decision to stay put in the first quarter of the year.
“Since it last changed the cash rate in December, the Board has maintained the view that the setting of policy was appropriate for the time being, but that the inflation outlook would provide scope for easier monetary policy, if needed, to support demand,” Stevens said.
But Firstfolio chief executive Mark Forsyth claimed the bank could have staved off the need for deeper cuts by taking action sooner.
“Our view is that a 25bp cut in February was appropriate, and may have forestalled the need for [a] deeper cut,” Forsyth said,
Nevertheless, Stevens said the bank made the more dramatic move to ensure lower mortgage rates filtered through to borrowers.
“In considering the appropriate size of adjustment to the cash rate at [April’s] meeting, the Board judged it desirable that financial conditions now be easier than those which had prevailed in December. A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates,” Stevens said.