Deep RBA cuts still not enough for some

by Adam Smith02 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.

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RBA shocks with 50bp cut



  • by Craig Dres 2/05/2012 11:56:29 AM

    RBA should be held accountable for its blunders.
    Made mistake in raising rates in Nov 2010 and was very predictable last year where this economy was heading. Rate cuts shoudl have commenced in August 2011 and teh Nov and Dec.
    May at least 5 mths to late! Unemployment rising to 6% easy. Poor economy and govt equals volatility.