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RBA signals rate shift

By webmaster
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How things can change in just one year! In November 2010, the Reserve Bank shocked the nation when it lifted the official cash rate on Melbourne Cup day.


Today, the Bank has got us wondering, but for a different reason.

At its October board meeting, the Bank signalled a slight shift in its rates approach, hinting it could cut the official cash rate before Christmas.

What’s behind this shift, you ask? According to the minutes of the October meeting, the Reserve Bank is prepared to do whatever it takes to support our economy, and while consumer confidence rebounded somewhat in September, it still remains incredibly weak.

The latest Westpac Melbourne Institute Index found consumer sentiment rose from 89.6 to 96.9 in September, but there is still a long way to go, according to Alan Shields, director of business research house RFi.

“Research conducted by RFi shows people are more concerned about the state of the domestic economy and the state of the global economy now than they were during the depths of the GFC,” Mr Shields says.

“A majority of Australians are choosing to save for no particular reason. They have no savings goal; they just want to save in a bid to help them feel more comfortable about the future.”

According to Mr Shields, the Reserve Bank’s decision to leave rates on hold for a prolonged period is actually not helping to improve the situation.

“We are at a place now where the RBA has not moved for the best part of a year and that makes people nervous – it creates uncertainty,” he says.

Perhaps the Bank understands this, which is why it is now hinting seriously at a rate cut. Whether it does in fact trim the cash rate from 4.75 per cent obviously remains to be seen.

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