Australians were yesterday poised for another interest rate cut as new data showed business confidence deteriorating rapidly and retail sales and house prices flagging.
The central Reserve Bank of Australia (RBA) is widely expected to slash its official cash rate by 50 basis points to 5.5 percent at its monthly meeting today amid a slowdown in the economy.
The anticipated move, which would bring the rate to its lowest level since May 2006, follows a 100 basis point cut last month as the RBA dramatically relaxed its tightening stance in the face of the global financial crisis.
“It’s the weakest outlook for the global economy since the end of World War II,” Citigroup managing director of economics Stephen Halmarick told national news agency AAP. “It’s why our interest rates would reflect that.”
The rate cut would come as Australian business confidence is falling rapidly as a result of the credit turmoil, a survey of 303 companies by the Australian Industry Group showed.
It found that more than 60 percent of companies felt the crisis had hurt sales, one-third of them saying the impact had been strongly negative.
“This survey, combined with anecdotal evidence from a wide cross-section of sources, confirms that we are in for a rough ride,” chief executive Heather Ridout said in a statement. “It suggests very strongly that the malaise has spread to the real economy and that we are yet to feel the full impacts.”
Australia also reported yesterday retail sales fell in twice as much as expected in September and housing prices fell sharply in the third quarter. The data cemented expectations the central bank will slash rates by a further half-a-percentage point to 5.5 percent, bringing the easing since September to 175 basis points.
In Europe, the Bank of England and the European Central Bank have both primed investors for another round of cuts later this week.
The US Federal Reserve and central banks in Japan, China and India all cut borrowing costs last week in an effort to shield their economies from the fallout from the crisis, which started when the US housing boom turned sour 15 months ago.
Interest rate cuts and a barrage of initiatives to shore up banks and pump-prime sputtering economies, encouraged some investors to shop for bargains after world stock markets fell 20 percent last month alone, their worst month ever.
“The focus this week is clearly on some of the major central banks and it is hard not to see the disease that started in the US spreading to other economies,” said Robert Rennie, chief currency strategist at Westpac in Sydney.
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