Business Leaders Hope for Another Interest Rate Cut in Next Few Months

Even if the Reserve Bank of Australia's Tuesday decision to hold the overnight cash rate at 3.5 per cent was widely anticipated by analysts, business leaders are still hoping for another rate cut in the coming months.

Another rate cut is hoped to help boost some struggling sectors in the Australian economy, the business leaders said.

The RBA, after reducing the key lending rate by 75 basis points in May and June, opted to leave the benchmark interest rate untouched due to a more subdued international outlook despite the country's inflation rate expected to be consistent with the central bank's target.

"We still think further reduction will occur in this half of 2012, as European instability is far from over and this will be a rolling source of angst affecting financial markets," Australian Chamber of Commerce and Industry Economics Director Greg Evans was quoted by The Australian.

JPMorgan economist Ben Jarman, who noted the RBA statement was tight-lipped about chances of another rate cut in the next few months, forecast two more rate reductions in August and November 2012.

RBC Capital Markets chief economist Su-Lin Ong said the timing of another rate cut is difficult to predict because the RBA is a reluctant cutter due to the renewed stress in global credit markets and continued weakness in the global activity data.

The Australian National Retail Association and Master Builders Australia criticised the RBA decision to hold the rates.

"The glass may continue to be half-full for some industries - but it is little comfort for those parts of the building and construction industry firmly in the slow lane of Australia's two-speed economy," the two associations said in a statement.

With the RBA policy, analysts expect the major banks to retain as well their mortgage interest rates with the exception of ANZ Bank which has been known for veering away from RBA policies. In the June RBA decision, ANZ surprised observers by passing in full the 25-basis points rate cut while other banks pocketed part of the rate reduction.

Despite the RBA decision, Mortgage Choice, the largest independently operated mortgage broker in Australia, said borrowers that rather than expect another round of rate cuts, they should focus on controlling their finances to seek other sources of savings other than lower mortgage payments.

"The decision to hold the cash rate at the current level of 3.5 per cent was expected by the majority of economists and market commentators, but it is likely many borrowers were hoping for a third consecutive monthly rate cut," Mortgage Choice spokesperson Belinda Williamson said in a statement.

"The fact is that a number of Australians are still worried about the state of our economy and the impact of recent turbulence in global markets," she added.

Ms Williamson suggested that Aussie borrowers make up for the RBA decision by taking control of their lender by building a relationship with them, taking control of their loans through tapping features such as offset account, extra repayment options and redraw facility, and taking control of their finances by seeking expert advice.