Business calls for interest rate cut, but economists expect no movement from RBA

Poor economic data in the housing and construction sectors has caused some anticipation over this afternoon’s Reserve Bank meeting, but economists are adamant the bank will keep the official interest rate at 4.25%.

However, business and industry groups including the Housing Industry Association, the Australian Chamber of Commerce and Industry and the Construction, Forestry, Mining and Energy Union have all called on the Reserve Bank to cut rates.

The RBA decision comes after the release of disappointing economic data. The Australian Bureau of Statistics yesterday revealed housing approvals fell 7.8% in February, while the AIG Construction index contracted again last month.

There was some hope in house prices released by RP Data and the private inflation gauge from TD Securities and the Melbourne Institute also showed price growth is under control, giving the RBA scope to cut rates.

A Bloomberg survey of 24 economists found none expect the RBA to cut rates today.

CommSec chief economist Craig James yesterday said while the manufacturing data remains weak, along with low inflation, the stable house price data suggests the Reserve Bank will stay “on the sidelines”.

TD Securities head of Asia-Pacific research Annette Beacher also said she couldn’t identify any “triggers” for the RBA to reduce rates by 0.25 percentage points.

”We expect the RBA to remain relaxed and comfortable as neutral monetary policy is consistent with the bank’s forecasts for trend growth and trend inflation over the medium term,” she said.

However, business groups have complained their views are not being heard.

Australian Chamber of Commerce and Industry director of economics and policy Greg Evans told reporters yesterday that “we don’t think there could be a clearer case for business requiring a rate cut at the moment”.

Housing Industry Association chief economist Harley Dale also told SmartCompany this week he believes some movement on rates is required.