Rate cut might not do much for the economy, finance expert says

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With most marketers and economists positive that a rate cut by the Reserve Bank is imminent, it is hard to say whether it will make a positive difference in economic growth or inflation. That is according to The Sydney Morning Herald columnist Michael Pascoe.

“There is no evidence of any business holding off an investment decision in the hope of a 1.5 per cent cash rate,” he wrote. “There is evidence that non-resources business conditions are actually quite strong, that hiring intentions are picking up and that the availability of credit and the price of that credit are rather good.”

Pascoe also pointed out that consumers now seem immune to monetary stimulus. Instead of securing more money to spend due to the interest rate cut, home loan borrowers are choosing to pay off their loans more quickly. On the other hand, retirees now have reduced ability to spend as they receive lower interest on their savings.

While it could help those who want to get a bigger mortgage, not a lot of people will benefit from it given the unaffordability of the property sector. According to CBA chief economist Michael Blythe, “There is a respectable line of argument that further rate cuts may not help. And that cuts may just add fuel to the housing market.”

To conclude, Pascoe believes that the RBA rate cut will not help Aussies much. 

“Another rate cut won’t turn around the low inflation numbers or push our GDP growth any higher. We’re a low inflation country in a low inflation world. The RBA can’t change that,” he said.

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