Interest rates could be cut by June

THE RBA may start cutting interest rates if Australia's economy outside the mining sector doesn't improve, a financial expert says.

RBA

THE Reserve Bank may start cutting interest rates by mid-year if Australia's economy outside the mining sector does not improve, says Morgan Stanley Smith Barney investment strategy head Malcolm Wood.

In Adelaide for a client briefing, Mr Wood said the official rate of 4.75 per cent could be cut by 25 to 50 basis points by mid-year if weak economic data continued.

"We've been held back by the most aggressive central bank in the world and we think they've done their job,'' Mr Wood said.

About 5 to 10 per cent of GDP growth could be attributed to the mining boom but "everybody else is paying for the boom'' with weak retail, housing approvals and "sluggish'' credit growth.

Economists and analysts have largely expected a rise in interest rates this year with the RBA's last rate rise in November to 4.75 per cent, holding steady for the past three monetary policy meetings. The RBA board will meet to consider rates next Tuesday.

Mr Wood said economic data had remained soft with retail spending and consumer confidence down and employment growth static for the past three months.

But he said economic shocks stemming from Japan and Libya would create a small ripple for global economic growth.

February retail trade, building approvals and job vacancy data are all due from the Australian Bureau of Statistics this week.