Momentum building for August rate cut

by AB26 Jul 2013

The RBA should reduce the official cash rate when it meets on August 6, claims the Housing Industry Association (HIA). Yesterday’s release of a benign inflation outcome for the June quarter and weakness in the labour market, under-played by headline labour market figures, provides an environment where a further rate cut is appropriate, says HIA senior economist, Shane Garrett.

"June's worrying increase in the unemployment rate to 5.7% indicates a weakening economy in a setting where job security concerns remain a prominent handbrake on residential construction activity. Developments with regard to inflation provide the RBA with considerable room to manoeuvre on interest rates, so why wait and add to the existing uncertain mood as a federal election looms?" he asks.

"Signs of a new home building recovery are narrowly based and spending on renovations is at a ten-year low. Independent research has demonstrated that a growing residential construction industry has very positive effects on the wider economy.”

"A second rate cut for the year on August 6 would bolster the prospects that the body of residential construction demand currently stuck in a pre-election holding pattern can subsequently be released.”

"Commentary is widely focussed on another rate cut happening at some point - businesses and households are acutely aware of this. Holding off on a rate cut in August would simply add to the dominating mood of uncertainty.”

Garrett's remarks follow similar comments from the REIA yesterday.

COMMENTS