An RBA rate cut would be pointless

UTS business professor Warren Hogan.

The markets almost unanimously expect the RBA to cut interest rates at its meeting on Tuesday, but the case for a rate cut is simply not there.

Official rates now stand at 0.75 per cent, which means the impact of any cuts is diminished and whatever firepower the central bank has left should be kept for later if consumer confidence takes another dive.

UTS Business Professor Warren Hogan is one of many economists who believe the RBA should follow the US Fed’s lead and use its statement to signal intentions rather than actually cut rates.

“Its too early to take aim,” he told The Australian.

The US Fed has a more global role which means its actions can help settle global markets.’

But the RBA on its own will do little to calm fears driven globally .

The problem right now lack of supply rather than lack of demand so an increase in liquidity will make little difference.

Lack of funding is not the issue confronting the market right now.

The federal government has attacked the major issue, which is a health problem.

Financial markets are rightly signalling economic problems from the virus as its impact spreads around the world, none of which are matters the RBA can influence immediately.

If the RBA wants a lower Australian dollar, the market is already doing it for the bank.

Some Australian retailers are reporting supply difficulties from China, which has caused some panic buying in supermarkets.

While economists I contacted say a rate cut would do little they also note it won’t do any damage either.

Market expectations increased last Friday when News Corp columnist Terry McCrann wrote a rate cut is certain and this was taken to be a lead from the RBA given past practice.