Short odds on interest rate cut
As the Reserve Bank makes its monthly interest rates decision, the betting on what it will do could hardly be clearer.PT3M18S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2arcs 620 349 December 3, 2012
THE Reserve Bank is considered certain to cut interest rates after a last-minute deluge of data showed spending had stalled, profits had collapsed, the job market had shrunk and inflation had turned negative.
"Interest rate cuts come in groups," said the chief economist at Bank of America Merrill Lynch, Saul Eslake. "Like cockroaches, there's hardly ever just one.
"The Reserve Bank cut in October, it held off in November, and now it knows it needs to do more. If it doesn't move on Tuesday it will have to wait two months until its next scheduled meeting in February."
Slowing down ... national retail spending hit a wall in October which is likely to prompt another interest rate cut, economists say. Photo: Louise Kennerley
Retail spending stopped growing in October. The Bureau of Statistics says minimal growth in NSW and a drop of 0.5 per cent in Victoria were offset by continuing strong growth in Western Australia. The national growth rate of zero is significant because it came after a rate cut intended to spur spending. Spending on items other than food fell 0.7 per cent.
"It is clear the economy is, in effect, treading water," said the CommSec economist Savanth Sebastian. "Consumers are holding back on significant purchases.''
The monthly TD Securities inflation gauge shows prices fell 0.1 per cent in November, suggesting the December quarter consumer price index will rise a mere 0.2 per cent, allowing ample scope for the bank to cut again.
The ANZ job advertisements index fell a further 2.9 per cent in November, its eighth consecutive drop. Job advertisements are down 17 per cent since February.
Total wages and salaries paid by businesses fell in the September quarter for the first time since the global financial crisis.
Company profits fell 2.9 per cent, mining profits slumped 12.2 per cent - offset by a rebound in manufacturing profits of 10.8 per cent - and small business profits slipped 2 per cent.
Inventories grew for the fourth straight quarter, climbing a further 1.1 per cent as businesses found themselves unable to move as much stock as they had expected.
The budget cuts announced in October have added to pressure on the bank to boost economic growth.
The bookmaker sportingbet.com.au would pay only $1.22 on a $1 bet for a rate cut, compared to $3.25 for no change.
"It's around what we would pay on Black Caviar winning its next race," said a spokesman, Haydn Lane. "It's about as close as you get to a certainty."
The Australian dollar fell almost a third of a cent to 104.06 US cents on Monday in expectation of a rate cut.