The Reserve Bank’s decision to cut rates by 0.25% to 7% has been welcomed by business groups, but many have questioned whether the cut will be big enough to help companies survive the downturn.
The Reserve Bank’s decision to cut rates by 0.25% to 7% has been welcomed by business groups, but many have questioned whether the cut will be big enough to help companies survive the downturn.
The rate cut, the first in seven years, was desperately needed by business. A SmartCompany poll showed yesterday that almost 90% of SMEs have been negatively effected by higher interest rates, with a third sacking staff and 60% delaying expansion plans.
But more than three quarters of respondents said they wanted a rate cut of 0.5% to help them keep their heads above water.
Australian Industry Group chief executive Heather Ridout welcomed the cut, but wonders if it is enough.
“The open ended question remains whether this rate cut will be sufficient. The pace and extent of the easing in activity suggest that there will be a need for more rate cuts if a further deterioration in activity is to be avoided.”
Australian Retailers Association executive director Richard Evans claims the rate cut has come too late for many small retailers.
“The concern we have is that petrol prices are continuing to place more pressure on grocery prices. This is going to further bite into the already tight purse strings of average Australians and put pressure on retailers as discretionary spend declines,” he says.
“Let’s hope the RBA has seen the damage and decides to give the economy more relief and cut the cash rate again in October.”
Westpac chief economist Bill Evans expects that is exactly what the RBA will do.
He believes the RBA will continue with its plan “to ease rates in September and to quickly follow this up with an additional rate reduction. Our call remains for a 0.25% interest rate cut in October.”
Other economists are not so sure about an October cut, but there appears to be general agreement that rates will fall before the end of the year.
ANZ economist Katie Dean predicts another rate cut after the RBA studies inflation, GDP growth and jobs data.
“Although there is no explicit indication of further easing from the statement, we still expect another 25 basis points rate cut from the RBA in the next few months, more likely in November than October.”
Meanwhile, Aussie Home Loans chief John Symond has told SmartCompany that banks will continue to tighten lending criteria after becoming too “free” with buiness lending in recent years.
“I do think that credit has been too free, not just to some consumers who were buying homes without deposits, but also businesses who have over-extended themselves,” Symond says.
“Banks will tighten up credit whilst the economy remains in a slow down stage and businesses will find it more difficult to access capital and they will find that they need to get their ship in order. All businesses have to do that.”
To read the full interview with John Symond, click here.
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