Australia Braces for More Rate Cuts

Expect more rate cuts in Australia in the coming months. Analysts said that as the consumer price index climbs slowly, this will also affect the annual price growth. 

The country’s consumer price index has been at its weakest since the global financial crisis in 2009. 

Analysts said that rate cuts are also most likely to happen as the budget needs to be tightened to achieve a surplus. 

The Reserve Bank of Australia is scheduled to have its board meeting this Tuesday and will discuss what the latest cash rate will be. The board is only going to have to choose between two figures—0.25 points or 0.50 points. 

In July, the highly controversial carbon tax will also be introduced. Industry observers expect that this will significantly affect the cost of living and the further lowering of interest rates. Some, however, are opposed to this new rate cuts. 

Stephen Koukoulas said that the Reserve Bank of Australia should have made the cut back in February or even in the last quarter of 2011. The move should have been made because of projections of a three-percent inflation rate. Koukoulas is the economic consultant and was once an adviser to the Prime Minister. 

The economic consultant also said that it is now clear everyone underestimated the impact of the strong dollar. Everyone also failed to appreciate how construction and weak retailing really were. 

Treasurer Wayne Swan stressed that the Reserve Bank was independently making its decisions and that if inflation eases then the monetary policy can be adjusted.

Tagged Reserve Bank of Australia, Stephen Koukoulas, Wayne Swan