Yahoo Finance World interest rate move that RBA must follow before it's too late: 'Act now'
Australians are suffering under restrictive interest rates and they don't need to with an economic scorecard like this.
The general gloom and funk that has dominated debate about the Australian economy might be fading. “Might” because some of the better news is predicated on the Reserve Bank of Australia (RBA) following through and cutting interest rates on the back of low inflation.
This is an essential requirement to validate the tentative signs of an economic recovery. But this progress could be squandered if the central bank fails to move ... again.
Over recent times, the following economic scorecard has been released:
New building approvals are up for six straight months in trend terms to be almost 10 per cent above from the low point in February 2024;
Retail spending rose 0.7 per cent in August to register the 5th straight month of increase;
Consumer sentiment rose 6.2 per cent in October to be at its highest level in two and half years. Sentiment is up 10 per cent from the low point.
The number of new housing loans is increasing, with first-home buyers accounting for more than one-third of activity.
Share prices in Australia are testing a series of new record highs – this is good for business and householders through their superannuation accounts.
Inflation has fallen from 8.4 per cent at the end of 2022 to 2.7 per cent in August 2024, returning inflation to the RBA’s target. This is easing cost-of-living pressures.
Wages growth is rising at a faster pace than inflation, which has seen real wages increase.
In terms of a number of other partial and tentative indicators, job ads, business confidence and commodity prices have all ticked up - but more upside momentum is needed to confirm a recovery.
It is an encouraging scorecard.
It is in the context and the latest reading of annual GDP growth which is just 1.0 per cent, the weakest in 30 years. The economic sluggishness has seen the unemployment rate rise from a low of 3.5 cent during 2023 to the current reading of 4.2 per cent.
A stronger economy is essential to stem the rise in unemployment.
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One of the key factors that have been identified as reasons behind the lift in consumer sentiment and stabilisation in business conditions is the expectation that the RBA follows through with the start of an interest rate-cutting cycle.
Indeed, Westpac noted it had helped with the solid jump in consumer sentiment.
“Expectations have been buoyed by interest rate cuts abroad and more promising signs that inflation is moderating locally. Consumers are no longer fearful that the RBA could take interest rates higher," Westpac wrote.
In other words, these encouraging economic signs require the RBA to endorse the market pricing and start an interest rate cutting cycle sooner rather than later.
Conversely, if the RBA does not cut, these positive signs for the economy could quickly reverse, extending the economic sluggishness and driving the unemployment rate yet higher.
It is important the RBA recognises this and acts accordingly.
There are other reasons for the more positive recent tone in the economy.
The series of cost-of-living policies from the Federal government, including the income tax cuts, subsidies for electricity bills and rental assistance have an impact on consumer finances.
The bulk of these took effect from 1 July 2024 which may help explain the recent run of better news.
These measures have all boosted disposable incomes.
The lift in annual wage growth to a healthy 3.5 to 4 per cent, when inflation is below 3 per cent, is also helpful for household finances.
To be sure, the economy is still weak and there are many sectors under pressure.
But all economic recoveries need a catalyst and can be snuffed out with policy mistakes.
With the rest of the world cutting interest rates, inflation back under control, the unemployment rate rising and with these hints of an economic recovery, the RBA needs to start cutting interest rates.
Such a move would lock in better economic news and set the economy up for a decent period of growth, deliver good news on unemployment and help restore confidence in the economy.
