Fed: ACCI urges RBA to cut rates

AAP General News (Australia)
04-02-2001
Fed: ACCI urges RBA to cut rates

EDS: Embargoed to 0001 AEST Monday April 2



By Krista Hughes and Jeff Turnbull

CANBERRA, April 2 AAP - Businesses urged the Reserve Bank to heed a new survey showing
another plunge in investment confidence and cut interest rates again when it meets tomorrow
(Tuesday).

The Australian Chamber of Commerce and Industry (ACCI) said its latest survey showed
business confidence was down in the three months to April for the fifth quarter in a row.

Sales, investment and employment were continuing to slow from the peak in January 2000
and the overall index of investor confidence was at its lowest level since July 1993.

ACCI said almost half the businesses surveyed in the last three weeks said they felt
current business conditions were poor or worse and about 40 per cent expected the exchange
rate to weaken further.

The Reserve Bank has already moved to cut interest rates twice this year, the drop
of three-quarters of a percentage point saving about $60 a month on the cost of an average
25-year, $130,000 home loan.

Economists are split on the chances of a half or a quarter percentage point rate cut,
and ACCI chief executive Mark Paterson said it would be a tragic mistake to leave rates
unchanged.

"It is a matter of the greatest concern that despite a series of recent interest rate
cuts, the outlook for business activity and investment continues to remain weak," he said.

"There is no question that rates must fall. There must be an urgency within the bank
about getting rates down to a level consistent with the resumption of strong rates of
growth."

Tomorrow's meeting will be the first for former National Farmers' Federation president
Donald McGauchie, who is expected to tell other board members about the impact of high
interest rates and fuel prices in the bush.

A half a point cut would bring the cash rate down to five per cent, the lowest point
in the last rate cutting cycle in 1996-97.

Westpac chief economist Bill Evans said a larger cut would help the dollar, which closed
at an all-time low of 48.50 US cents in New York on Friday.

"Currencies are really responding to the growth outlook and a lower interest rate will
encourage a positive growth outlook and a half per cent cut would support the Aussie dollar
rather than be a negative," he told the Nine Network.

But ANZ counterpart Saul Eslake predicted the Reserve would shave off a quarter of
a point now and another quarter next month, bringing rates down slowly to avoid showing
a sense of panic.

Retail spending figures due out today are expected to show flat sales in February as
news of the slowing economy and ailing currency flooded the media.

Economists said high petrol prices and higher prices for imported goods also reined
in spending, but a stronger than expected result could influence the bank against a rate
cut.

AAP kmh/br

KEYWORD: RATES

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