Weak global growth sparks another rate cut

The RBA has dropped the cash rate to 3.00 per cent, its lowest level in more than three years. Source: AAP

THE central bank has given Australians an early Christmas present, but there are no signs there will be more interest rate cuts in early 2013.

The Reserve Bank of Australia (RBA) on Tuesday cut the cash rate by a quarter of a percentage point to three per cent, taking it to its lowest level since October 2009 during the global financial crisis.

The RBA has cut the cash rate by 1.5 percentage points since November 2011.

This has been done in an effort to maintain growth in the face of a weak US economy, the euro zone debt crisis, a dip in Chinese economic growth and commodity prices falling off their all-time highs.

RBA Governor Glenn Stevens said in a statement on Tuesday that most indicators suggest that the Australian economy is growing around trend, but the peak in resource investment is getting closer.

"As it does, there will be more scope for some other areas of demand to strengthen," he said.

The Australian dollar rose a quarter of one US cent after the interest rate announcement, which Easy Forex currency dealer Anthony Botros said was due to further interest rate cuts being unlikely.

"In the accompanying statement there's no signs from the central bank there would be any more rate easings in the first quarter of 2013," Mr Botros said.

"They said recent easings of late are starting to work their way through the economy and they foresee that inflation pressure will be contained in the next one to two years."

Commonwealth Bank senior economist Michael Workman said the RBA's statement suggested concerns about the persistently high value of the Australian dollar may have also contributed to the decision to cut.

"The exchange rate still hasn't shown any signs of weakening," he said.

"It is just stuck in this range of 103-105 US cents, it is just remarkable."

Mr Workman said the high value of the Australian dollar was one of the biggest negative influences on the economy.

He said the RBA was likely to cut the cash rate again in February if the currency is still around the same level.

Australian National Retail Association president Margy Osmond said the reduction in the cash rate will give consumers and retailers a boost but the move could have been too late for Christmas.

"It might not be enough to have an immediate impact on Christmas sales, but may be enough to encourage shoppers into the shops through January," she said.

"Of course, the banks have added to the delay with few moving immediately to slash their rates in response to a move by the central bank."

Prime Minister Julia Gillard, earlier on Tuesday, urged banks to pass on the interest rate cut.

"It's very close to Christmas ... we want to see families benefit from any interest rate reduction that flows today," Ms Gillard said.

The release of weak retail spending data on Monday raised the possibility by some market watchers that the RBA could cut by as much as half a percentage point in December.

Premier Investments chairman Solomon Lew was one of them.

"I think if they're going to do a quarter and a quarter it's not going to be as effective," he said after the retailer's annual general meeting on Tuesday.

"They're sending a message at 0.5 per cent."

If the RBA's interest rate cut was passed on in full, repayments on a $300,000 mortgage would drop, on average, by almost $47 a month.

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