Major lender points to August rate cut

by AB11 Jul 2013

Despite signs from its competitors - including comments made earlier this week by Westpac CEO, Gail Kelly, suggesting rate cuts were unlikely and ANZ's decision to increase its three-year fixed interest rate - NAB expects the RBA to make another rate cut as early as August, following the results of its monthly business survey indicating business conditions have reached their lowest point since May 2009.

The major lender says the June 2013 report paints a ‘worrying picture’ of the Australian economy.

“Weaker trading conditions and profitability combined with still poor employment conditions drove business conditions lower, with each of these indicators remaining well below average levels.”

NAB says conditions ‘deteriorated heavily’ in mining, retail and manufacturing and that weak forward indicators, including forward orders, stocks, capacity utilisation and employment conditions, remain concerning and suggest little improvement in near-term demand.

While business confidence lifted marginally in June, it remained ‘lacklustre’, according to the survey. The falling A$ appears to have done little to lift spirits and federal politics have also had a potentially negative impact.

“Overall weakness in domestic economy also likely to be worrying firms. Federal government reshuffle occurred during the final days of survey period, but the survey provides little indication about how sentiment may have been affected.”

“Overall, the survey implies underlying demand growth and GDP (six-monthly annualised) of around 2.5% in the June quarter. Our wholesale leading indicator suggests a modest improvement in near-term activity, at best.”