Rate cut case grows, but banks may not budge

by Adam Smith24 Jan 2012

A key inflation measure has added fuel to speculation that the RBA will again cut rates when it meets on February 7.

The Producer Price Index, often a leading indicator of the CPI, came in just below analysts' expectations at 0.3% for the quarter. With CPI figures due tomorrow, Westpac senior economist Justin Smirk has said inflation risks are weighted to the downside.

"Today’s PPI release has left us more confident hat an upside surprise to our forecasts are unlikely and that a downside surprise is the more likely outcome," Smirk said.

Upside surprises were present in the PPI numbers, however. Core measures of inflation in construction rose more than expected. Nevertheless, Smirk said domestic core inflation "continues to hang around 2.5% per year".

Should the Reserve choose to move on rates when it next meets, the question remains whether banks will choose to pass on the cut. According to the Australian Financial Review, a Morgan Stanley analysis has predicted the banks will reprice home loans in an effort to offset higher funding costs, passing on only a fraction of any RBA cuts.

Related stories:

Consumers subdued despite rate reprieve

Pundits predict further RBA cash rate cuts

RBA to cut rates in February: St. George


  • by ChrisC 24/01/2012 10:14:38 AM

    Its these representations made whereby the banks and media are pre-conditioning our minds so that when it happens, we expect it and are more accepting that some of the rate reduction may be passed on to the consumer loans to keep the Govt and the media happy but the poor business and commercial segments will probably miss out yet again for the Banks to continue bucking the trends of most other businesses in achieving sustained record profits each year in a recession ....... just because they can. Funny how most 2nd tier Banks can pass on the rate cuts.