Kerry Stokes, Gail Kelly warn Reserve Bank to limit interest rate rises amid 'economic downturn' fears

LEADING executives urge the Reserve Bank to limit interest rate rises this year as consumers and the economy struggles.

Australian Agenda

SOME of the country's leading executives have urged the Reserve Bank to limit interest rate rises this year, warning that the non-resources economy was struggling and would be unable to cope with more cost pressures without serious consequences for businesses and consumers.

The Australian Agenda event, hosted by The Australian and UBS in Sydney yesterday, was told that mining and infrastructure were the only sectors experiencing growth, while the high Australian dollar and cautious consumers were taking a toll on the rest of business.

Seven Group chairman Kerry Stokes warned Julia Gillard, who delivered her first official post-budget speech at the event, there was a damaging "major downturn" evident in the economy that the government must tackle.

Mr Stokes said the economy was performing well last year but was hit by Labor's controversial mining tax proposal and the Reserve Bank's decision to raise interest rates in November.

Mr Stokes told the high-powered business audience, which included James Packer and BHP Billiton chief executive Marius Kloppers, that the economy did not need more interest rate rises.

"There's no question we're in a two-speed economy. There's no question that outside of major (mining) activities and infrastructure activities our economy is not very well at all," he said.

"Retailers, people who are involved in all sorts of activities, are finding it really tough.

"In fact, it has got all the feelings of a major downturn in the economy."

Mr Stokes criticised the RBA for warning recently that two interest rate rises could be needed to cool the economy's growth and manage the rising inflation rate.

"The trouble I have is trying to come to grips with a budget figure which tells me there's 4 per cent growth and we're going to hold the inflation target to within 2.75 per cent, which is within the bandwidth that the RBA has set for what it regards as acceptable," he said. "If that's the case, why would it seem necessary to tell the marketplace there's likely to be two interest rate rises this year?

"Unless it was concerned about what it thought was going to be a breakout in wages above the inflation band or an increase in the availability of labour, it wanted to stop activity everywhere but in the mining companies."

Ms Gillard, facing one of her largest corporate audiences since becoming Prime Minister in August, downplayed Mr Stokes's claim that a "major downfall" had begun in the economy.

"No, I'm not subscribing to that language," she said.

Westpac chief executive Gail Kelly told the forum she believed the RBA was deliberately trying to cool the Australian housing market. However, she said that consumers could only cope with one interest rate rise this year.

The financial markets predict rates will be raised in June or July. The RBA minutes from this month's meeting, due to be published today, are expected to give the markets guidance on the timing of the next move.

"I think the RBA has done a really careful job over the whole course of the crisis and now they're clearly wanting to keep housing prices going nowhere," Mrs Kelly said.

"They want to make sure that consumers remain cautious, they want to make sure that inflation pressures are moderated in that way."

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