Mon, Nov 07, 2011 - Page 10 News List

Sydney rate cut could up saving: expert

Bloomberg and AFP

Australia’s first interest-rate cut since April 2009 could boost consumer saving rather than spending, adding to the case for further reductions, according to Westpac Banking Corp chief executive officer Gail Kelly.

The Reserve Bank of Australia (RBA) cut the benchmark one-quarter of a percentage point to 4.5 percent on Tuesday, citing slowing inflation and weaker global growth. Sydney-based Westpac lowered its variable mortgage rate by the same amount.

“What will happen is that customers will take the extra cash that they’ve got and probably apply it more to debt repayment and to savings,” Kelly told the Australian Broadcasting Corp’s Inside Business program.

Australia’s resources industry boom, fueled by demand for iron ore, liquefied natural gas and coal from emerging economies such as China and India, might cushion the nation from financial turmoil abroad.

The Reserve Bank of Australia last week lowered its forecasts for economic growth over the next two years, while adding that the mining-related parts of the economy are growing strongly.

In a monetary policy statement finalized on Thursday, Australia’s central bank lowered its average economic growth forecast for this fiscal year to 3.25 percent from 4 percent.

The new estimate was officially released on Friday.

“The risks [to the forecast] continue to be tilted to the downside, with a very disruptive outcome in Europe still possible,” it said.

The RBA also lowered its inflation forecast to reflect the revised growth figures. In underlying terms, inflation is expected to be around 2.5 percent in 2012, 50 basis points lower than the bank’s August forecast.

The RBA said while the mining--related parts of the Australian economy were experiencing solid growth, with unprecedented Asian demand for minerals, the near-term outlook for the rest of the economy was subdued.

Australian Treasurer Wayne Swan said on Friday the RBA statement confirmed economic instability was impacting global growth and therefore impacting on Australian growth.

“Ultimately what we need for the economy to grow is for people and businesses to regain confidence and to decide now is the time to spend more and indeed to invest more,” Kelly said. “I think we’re a little bit off that at this point.”

Westpac, Australia’s second-largest lender, on Wednesday said second-half profit fell 13 percent as lending growth slowed and debt market turmoil triggered a drop in earnings at the bank’s treasury unit.

Slower lending signals that “customers are cautious, that they’re preferring to sit on their hands at the moment,” Kelly said.

Consumers and companies who found themselves with too much debt during the global financial crisis “won’t want to find themselves in that position again, so I don’t think its a bad thing,” she said.

As domestic spending slows, and Europe’s debt crisis threatens global demand, Australia is well placed to react, Kelly said.

The central bank is able to lower interest rates and the government has scope to provide further stimulus if needed, she said.

“I’d have to say I’m really happy and pleased to be a banker living in Australia,” she said.

“We have the tools to play to manage a downturn. We’ve got room to go if the Reserve Bank believes it is necessary to be able to provide further support to the economy,” she said.

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