We will know here, at 2.30pm AEDTAustralia's Reserve Bank will announce it's third successive interest rate cut minutes before the running of today's Melbourne Cup, with the betting being on whether the cut will be a cut of 0.50 percentage points or more.
A cut of 0.50 points if fully passed on would cut the standard variable mortgage rate to around 8%. A cut of 0.75 points would take it below 8%. It would be the first time mortgage rates had been below 8% since late 2006.
As Bank staff prepared for today's meeting and the 2.30pm announcement they were presented with new figures showing job vacancies dwindling, retail spending sliding and inflation evaporating.
The inflation gauge prepared by the Melbourne Institute and TD Securities collapsed to an annual rate of 3.9% in October from an official rate of 5% in September.
“It shows starkly the speed at which inflation is unwinding, said TD strategist Joshua Williamson. “A further cut in interest rates is entirely appropriate"...
Retail sales fell a seasonally-adjusted 1.1 per cent in September, led down by spending on non-essential goods. Large retailers did better than small retailers.
The Macquarie Bank's Rory Robertson warned that “paradox of thrift” seemed to have taken over, with households and businesses suddenly “saving for a rainy day” and so ensuring that the weather became bleak. He said as an example, Christmas parties were being cancelled as “an acknowledgment of the need for restraint in the context of the current economic climate”
The ANZ count of job advertisements released Monday fell 5.9% in October, with Victorian newspaper job advertisements down 11% in the month and 31% over the year.
“Growth in newspaper job advertisements is at its weakest since 2001,” said ANZ economist Warren Hogan. “The economy avoided recession then but the unemployment rate climbed from to 7%. The only weaker outcomes for newspaper job advertisements were in the recessions of 1991 and 1982.”
The Reserve Bank's commodity price index slid 5.1% in October, its first fall after a year of spectacular gains.
The Treasurer Wayne Swan said the economy was slowing, but that he did not expect a recession.
“The Government will publish in the next week or so our Mid-Year Economic and Fiscal Outlook and all of those figures will be out there for everybody to see. But I would just make this point: the Government does expect to see positive growth. We are not immune from the fallout of the global financial crisis. You can see that in the data today.”
Financial markets are pricing in a 100% chance of a rate cut of 0.50 points today and an 81% chance of a larger cut.
Most of the data before the board builds a case for a larger cut. Building the case for caution is a belief amongst Reserve Bank staff that the retail trade figures are unreliable following cutbacks at the Bureau of Statistics and that the $1,000 bonus payments to be delivered to families, pensioners and carers in December will boost consumer spending in the lead up to Christmas.
