Plenty of reasons for more rate cuts
(18 February 2013 – Australia) Further interest rate cuts will be needed to prevent unemployment rising and to boost under-performing sectors within the economy once the mining boom peaks later this year according to ANZ chief economist Warren Hogan.
All of the above were reasons Hogan believes the Reserve Bank of Australia (RBA) will need to cut the cash rate further this year.
He said inflation remained at the bottom end of the RBA's two-to-three percent target range, while jobs growth remained weak, and the economy was expected to struggle in the second half of 2013, once mining investment peaks.
'All we are pointing out is that in 2013/14 the gap will be in how quickly the non-mining economy can quick up versus the mining (economy) and I would say that the gap can only be so long,' he told a Committee for Economic Development of Australia (CEDA) forum in Sydney.
'It’s unacceptable to the Australian people that in the absence of high inflation, in the absence of any potential asset bubbles or credit bubbles, that the RBA would leave interest rates well above global levels.'
'In the presence of what is already quite a soft labour market we shouldn't be sacrificing too much in the way of employment when inflation is low, when house prices are steady, in order to keep interest rates at some perceived level.'
'Interest rates in our economy, if you make a broad judgement are about five percent, that's not dangerously low in any shape or form,' he said.
ANZ has forecast there will be four RBA interest rate cuts in 2013, which would take the cash rate to two percent.
He said inflation remained at the bottom end of the RBA's two-to-three percent target range, while jobs growth remained weak, and the economy was expected to struggle in the second half of 2013, once mining investment peaks.
'All we are pointing out is that in 2013/14 the gap will be in how quickly the non-mining economy can quick up versus the mining (economy) and I would say that the gap can only be so long,' he told a Committee for Economic Development of Australia (CEDA) forum in Sydney.
'It’s unacceptable to the Australian people that in the absence of high inflation, in the absence of any potential asset bubbles or credit bubbles, that the RBA would leave interest rates well above global levels.'
'In the presence of what is already quite a soft labour market we shouldn't be sacrificing too much in the way of employment when inflation is low, when house prices are steady, in order to keep interest rates at some perceived level.'
'Interest rates in our economy, if you make a broad judgement are about five percent, that's not dangerously low in any shape or form,' he said.
ANZ has forecast there will be four RBA interest rate cuts in 2013, which would take the cash rate to two percent.
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