Retail, manufacturing call for rate cut

1 Oct 2012, 5:48 pm   -   Source: AAP
The RBA will meet on Tuesday to decide whether to change the official interest rate. (AAP)

The RBA will meet on Tuesday to decide whether to change the official interest rate. (AAP)

The Reserve Bank meets on Tuesday for its regular interest rate discussion, with the retail and manufacturing sectors calling loudest for a cut.

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Struggling retailers and the ailing manufacturing industry are among the loudest pleading with the Reserve Bank of Australia (RBA) to cut interest rates, arguing jobs and livelihoods are at stake.

And both say they have the figures to prove it.

The RBA meets for its regular policy meeting on Tuesday to discuss what to do with the cash rate, which has been on hold at 3.5 per cent since June.

Most economists believe it will be slashed before the year is up but the question is exactly when.

The Construction, Forestry, Mining and Energy Union (CFMEU) says it needs to happen now.

It's particularly concerned following the release of the Australian Industry Group's latest manufacturing performance index, which showed new orders going down for the seventh straight month to 44.3 points.

CFMEU secretary Michael O'Connor says there's now a compelling case for a significant rate reduction and has urged the RBA to act decisively.

"For too many months now they have sat on their hands whilst jobs were lost and industries suffered," he said in a statement.

"Construction and manufacturing are in a parlous state ... they're telling us they need a rate cut."

He believes a cut should be in the order of 50 basis points.

Retailers are also pressing for a cut, arguing the sector is desperate for a change in consumer spending.

"The economic ducks have lined up for a drop in interest rates," Australian Retailers Association (ARA) director Russell Zimmerman said.

Retailers have had negative growth across all categories over the past two months, despite a relatively stable Australian dollar and only modest rises in inflation, proving it will take more to convince people to buy.

Both the ARA and the National Retail Association believe the carbon tax means bad news for business.

Economists think the RBA is primed to cut the cash rate, which has been lowered by 1.25 percentage points since November 2011.

A recent AAP survey of 17 economists showed all but two think it will be pushed down at least once by December, with five believing it will happen on Tuesday.

ACTU secretary Dave Oliver said he also wanted to see rates go down.

"People are struggling week by week and any relief that can be given through an interest rate cut will be welcome," he said.

But Jeff Oughton, founder of financial advice firm Economics and Beyond, said he would like to see a rate increase.

"I'll be happy to see interest rates go back up and return to a new normal," he said during a panel discussion in Melbourne to release ME Bank's latest household financial comfort index.

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