Housing body says 50-basis-point cut necessary to restore sector, as retail crosses fingers for rate cut

The housing industry is calling for a 50 point slash in interest rate cuts, saying 25 points wouldn’t do the job for the beleaguered sector.

Harley Dale, chief economist at the Housing Industry Association, says although most economists expect a 25 basis point cut, this wouldn’t be enough to lift the sector out of the doldrums because the banks might not pass on the full reduction.

“We think it would be appropriate to cut by 50 points partly because of the uncertainty and the jolt to confidence that comes from [the cut],” Dale tells SmartCompany.

Dale’s comments follow official figures showing building approvals fell by nearly 30% in the year to October.

The retail sector, meanwhile, says a rate cut would breathe some life into some weaker areas of the industry, most notably clothing, footwear and department stores, in the lead up to the key Christmas period, which accounts for 40% of annual trade.

“For some retailers it may stave off their financial issues going forward into the new year,” the Australian Retailers Association’s executive director Russell Zimmerman says.

The industry expects this year’s Christmas sales to be 2.2% higher than last year; a rate cut tomorrow would lift this growth rate a little higher, Zimmerman says.

“We might not be in the halcyon days of 5%, but we might see an increase of just a little bit more… around half a per cent or so.”

The RBA is expected to announce a rate cut to 4.25% tomorrow, on the back of the European sovereign debt crisis, problems in key sectors of the economy, and lowered official growth figures. 

But TD Securities head of Asia-Pacific Research Annette Beacher says the central bank should not respond too quickly to pressure for another rate cut.

“Instead, the RBA is in a strong position to voice an easing bias this week, but not deliver another 25 basis point cash rate cut until early 2012 to start the New Year with truly neutral monetary policy for whatever lies ahead,” she says.

Beacher expects September quarter economic growth figures, to be released on Wednesday, to be strong.

“…We expect another quarterly growth rate of at least 1%, driven by consumption and investment, for annual GDP growth of 2.5%,” she said in a statement.

According to an AAP survey of 16 economists, the median market forecast for GDP stands at 1.0% for the September quarter, for an annual rate of 2.1%.