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Rate cut will not help confidence, experts

By webmaster
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While the Reserve Bank’s decision to cut the cash rate has been seen as a blessing by many investors, research house Residex is disappointed by the outcome.

With the cash rate at its lowest level since November 2009, the RBA should have held their position said CEO of Residex, John Edwards.

Mr Edwards said that it is almost a counterproductive measure, as a small rate cut can get overlooked and have very little impact.

"This can simply work to the negative by further undermining confidence given the very wide-spread press about difficult global finances,” Mr Edwards said.

“The size of today's rate cut is such that a lot of it will probably get lost in the bankers needs to maintain margins and their stability. Funding margins in the current global finance market will be being impacted on as markets look to reduce risk exposure, particularly in Europe,” he said.

He explained that a better tactic may have been to wait to bring consumers a larger rate cut next month.

”A single, significant reduction of 0.5 to 0.75 per cent later in the year would have a guaranteed outcome at the consumers 'gate' once the Banks have also balanced their position,” he said.

However, accounting firm Chan & Naylor’s Ken Raiss said that it would take more than a cut, even of 0.5, to help reignite confidence in Australia’s investors.

“Stifled confidence is hurting the economy more than the effects of higher interest rates,” said Mr Raiss.

“In turn, it’s prohibiting money from moving down the chain to manufacturers, small businesses, property investors, retail industry and to consumers where it is most needed.

“The bigger the drop in interest rates, the more the banks will increase their profits and increase their own savings,” he said, pointing to stability and a firm approach from the Government as preferable over an interest rate drop.

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