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Rate cut uptick flows to retail, housing sectors

RATE sensitive sectors of the economy, such as retail sales and housing, are responding to the RBA’s rate cut last month but the global outlook is deteriorating.

INTEREST rate sensitive sectors of the economy, such as retail sales and housing, are responding to the Reserve Bank’s rate cut of last month but the global outlook is deteriorating.

The Reserve Bank board, meeting in Melbourne today, will be discussing whether or not to follow last month’s cut in the official cash rate, taking it down to a record low of 2 per cent.

An assessment of the flow of economic releases compiled by Westpac shows there has actually been some improvement in Australia in recent weeks, with an index, based on whether data releases show an improvement or a deterioration from the previous release, at slightly above long-term average levels.

“The main areas of strength, however, seem to be isolated towards the rate-sensitive sectors of the economy — retail sales, consumer confidence and housing data — over the last month or so.

“To be sure, this is a sign that suggests that the February rate cut was well received; however, the key question the RBA will have to weigh up was whether one rate cut was enough to shore up and overall improvement in the Australian economy,” Westpac chief currency strategist Robert Rennie said.

The latest releases, including business investment, and the ABS quarterly business health check, show trading conditions remain challenging.

The round of rate cuts and other stimulus measures from central banks around the world has not yet had any impact on the flow of data from around the world, which is well below average levels in both advanced and emerging nations.

Mr Rennie noted that there had been some improvement in the flow of data from both China and Europe over the last month.

Westpac also measures level of financial stress, using methodology developed by the International Monetary Fund. This shows that the easing strategy of the European Central Bank is beginning to have some effect, while the Australian index fell following the Reserve Bank’s February rate cut.

Original URL: https://www.theaustralian.com.au/business/economics/rate-cut-uptick-flows-to-retail-housing-sectors/news-story/f15c6d83fd7c090268d549d6b96f9e8d