MW: RBA likely to cut rates as slowdown-data mounts
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- Australia's central bank is widely expected to lower interest rates Tuesday, marking the third cut in as many months, amid mounting evidence the domestic economy is slowing sharply.
Analysts said growing signs of economic downturn and an easing in commodity prices should give the Reserve Bank of Australia the latitude for a sizeable half-point interest rate that would bring the cash rate to 5.5% at its policy board meeting Tuesday.
"That would square with the softer tone of the data out of Australia as well as the direction we've seen from central banks around the world that there are headwinds for the economy and downside risks going forward," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.
Among concerns is mounting evidence of a slowing job market. Recruitment ads in newspapers and online fell 5.9% in October on month, the steepest month-on month decline since February 2001, according to a survey by Australia & New Zealand Banking Group Ltd. The drop followed a 1.4% contraction in September, and marked the sixth consecutive monthly decline. ANZ forecast the weakening trend will continue, elevating Australia's jobless rate to 6.5% by 2010, up from 4.3% in September.
"The latest jobs advertisements data suggest the global financial crisis has had a substantial impact on the Australian economy," wrote Warren Hogan, ANZ's head of Australian economics, in a note Monday.
Other data released Monday pointed to slower consumer spending. Nationwide retail sales fell 1.1% in September on month, its biggest contraction in more than three years, according to the Australian Bureau of Statistics Monday. The dip was the biggest since April 2005, reports said.
Another worry is a deteriorating housing market. Home prices on average fell 1.8% in the September-ended quarter from the second, according to data released Monday by the Australian Bureau of Statistics. The index, which measures prices in eight regional capitals, showed overall gains of 2.8% from the same quarter a year earlier, but signs were pointing to an accelerating weakness.
Home prices in the nation's capital, Canberra, were unchanged from a year earlier and down 2.5% from the preceding quarter. Those in Sydney were down 1.8% on quarter and 0.4% on year, while Adelaide fell 0.1% on quarter and 9.7% year on year.
Merrill Lynch forecast the central bank will cut its cash rate by a half point and signal additional easing over coming months.
"We believe the household sector is in the early stages of a major de-leveraging phase, as evidenced in the credit data, which will place a major brake on spending over the next 12 months," wrote Merrill analysts headed by Peter Osborne in Australia in a note Monday.
The RBA slashed its cash target rate by one percentage point in October, front-running what began a concerted easing action by global central banks.
The government is expected to release its mid-year outlook on the economy later this month. The report is likely to downwardly revise economic growth for 2008 to 2009. It will also project a rising jobless rate for the next two years, according to a Dow Jones Newswire report.
