A lower than expected inflation figure is fueling speculation that the RBA will again cut rates when it meets on February 7.
The Producer Price Index, considered to be a strong indicator of the CPI, came in just below analysts’ expectations at 0.3% for the quarter. With CPI figures expected to be announced tomorrow, Westpac senior economist Justin Smirk has said inflation risks are weighted to the downside.
Other than inflation – there are daily reports of job losses across the board in the car industry as well as in manufacturing. Interest rate reduction can help boost demand in these areas and possibly create more jobs in the longer term.
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.
If this happens the expectation of cheaper loans as a result of rate cut, may not be fully realized.