Gail Kelly … expects a rate cut by February at the latest. Photo: Nic Walker
THE Reserve Bank is expected to leave rates on hold, making this the first Melbourne Cup day in six years it will have done so.
The Melbourne Cup day board meeting is traditionally favoured for rate moves because it comes days after the release of the September quarter consumer price index, which provides the first official reading on inflation each financial year.
This year the bank was so confident the inflation rate would not trouble it that it moved rates before the release, at its monthly meeting in October. Inflation has been at or below 2 per cent all year, even after the carbon tax - well down on the rates of 3 per cent or more consistently recorded all last year.
However, the chief executive of Westpac, Gail Kelly, called for more cuts to boost consumer and business confidence. She said a November cut was a "lineball call". Otherwise she expected one in December or February at the latest.
The Reserve believes its cuts this year - in May, June and October - are yet to have their full effect and that it is too early to tell whether the economy needs more back-to-back cuts. It is also conscious that international economic conditions have improved since its meeting last month rather than worsened as they had before it.
Complicating the board's deliberations are retail figures released on Monday showing no real growth in spending since the carbon tax compensation payments delivered in June.
Retail spending in the September quarter was up only 0.6 per cent on the June quarter but all the increase was accounted for by a 0.7 per cent lift in prices, meaning the volume of goods bought fell. Spending on food rose 1.3 per cent but prices had climbed 1.6 per cent, led by much higher prices for fruit and vegetables, leading the Bureau of Statistics to conclude the volume of food bought slipped 0.3 per cent.
"Consumer demand and retail spending remain soft but are ticking over with no signs of further weakening," said the Westpac economist Matthew Hassan.
"Consumers are worried about losing their jobs in a softening labour market, income growth is slowing and people are keen to pay down debt. The response to recent rate cuts has been tepid."
Purchases of food rose only 3 per cent in the year to September, those of takeaway and restaurant food 3.5 per cent, and of household goods 3.2 per cent. Department store sales increased only 1.4 per cent - failing to keep pace with population growth. "Clothing, footwear and personal accessory retailing" was the only spending category the bureau identified as growing strongly, rising 7.7 per cent over the year after adjusting for inflation.
Stark differences have emerged among the states, with inflation-adjusted spending increasing at annual rates of 8.9 and 4.6 per cent in the mining states of Western Australia and Queensland and at healthy rates of 5.8 and 5.2 per cent in NSW and the ACT. But spending in Victoria grew only 1.1 per cent, suggesting spending per person fell.
The ANZ's count of job advertisements slid another 4.6 per cent in October, its seventh consecutive monthly decline. About 145,000 jobs a week were advertised last month, compared with the 170,000 a week the year before.
"We expect employment to fall when the official figures are released on Thursday and the unemployment rate to pause at 5.4 per cent on its upward trend," said the head of economic research, Ivan Colhoun.
"Weaker job advertising and continuing job losses suggests continuing upward pressure on the unemployment rate. It will see the Reserve Bank cut rates further. We had been expecting a cut in December but a move on Melbourne Cup day would not surprise."
Westpac has reported a 5 per cent jump in cash profit to $6.6 billion for the year to September. It passed on 0.18 points of the Reserve's most recent 0.25 percentage point cut and has the highest standard mortgage rate of the big four banks.
Go to smh.com.au at 2.30pm for coverage of the RBA's decision