INDUSTRY groups have applauded the Reserve Bank of Australia’s decision to cut interest rates for the second time in two months, with the focus turning immediately to the willingness of banks to pass on the lower rate to households and business borrowers.
The RBA cut its cash rate to 4.25 per cent from 4.5 per cent at its December board meeting.
RBA governor Glenn Stevens said the eurozone financial and banking problems were likely to weigh on economic activity over the period ahead.
“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe,” Mr Stevens said in a statement accompanying the decision.
“This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased.”
The Housing Industry Association (HIA) said the decision sends a positive message to households and businesses.
HIA chief economist Harley Dale said global uncertainty remained rife and the implications for the Australian economy were unclear, so a further interest rate cut was justified.
“New housing activity is staring down the barrel of re-hitting GFC lows,” he said.
“Today’s interest rate cut provides a welcome sign that the RBA is on the case, although a 50 basis point cut would not have been out of line.”
The Australian Chamber of Commerce and Industry (ACCI) called on banks to pass on the full rate cut immediately.
The ACCI said the major banks took up to two weeks to react to the November rate reduction, and even then not all of the banks passed on the full amount of the cut to their customers.
“This is unacceptable and should not be repeated as it is frustrating the intention of the Reserve Bank in helping out weaker areas of the economy,” the chamber’s director of economics and industry policy Greg Evans said in a statement.
“The banks should not be backsliding on this, thinking the lack of focus and visibility in this area allows them the comfort of delay and inaction.”
He said households and businesses not directly benefiting from the mining boom would welcome the central bank’s latest decision.
RBC economist Su-Lin Ong said the 25 basis point cut would deliver a boost to struggling sectors including retail and housing.
Ms Ong expected further rate cuts to follow early next year.
“The easing bias is very clear. We think they will do more next year and we have another 50 points of easing in our forecasts,” she said.
The RBA board next meets in February.