Rachel Wells April 12, 2012
BUSINESS groups have urged the Reserve Bank to cut interest rates in a bid to lift the mood of consumers, who are as pessimistic about their personal finances as they were during the recession of the 1990s.
Calls yesterday for an interest rate cut from the Australian Chamber of Commerce and Industry and the Australian National Retailers Association came after consumer sentiment fell to its lowest in eight months.
The Westpac Melbourne Institute Consumer Sentiment Index fell by 1.6 per cent to 94.5 index points in April.
Business groups were joined by the unions and Westpac chief economist Bill Evans in calling for a cut in interest rates after households' perception of their own finances, which most influences spending, dropped to the lowest since the global financial crisis and was now in line with the levels of the 1990s recession.
''Apart from the one observation in July 2008 when respondents were gripped with concerns over the global financial crisis today's survey on their assessment of finances compared to a year ago (down 14.4 per cent) is the lowest since the recession in the early 1990s,'' Mr Evans said.
The Australian Chamber of Commerce and Industry called for a 0.5 per cent cut on cash rates when the bank meets on May 1 to ''break through the barrier of low business and consumer confidence before new taxes and costs hit business and consumers in July''.
''The time has come for Australia's central bank to move decisively to cut rates by a full half per cent, and for the retail banks to immediately pass it on,'' the chamber's chief executive, Peter Anderson, said in a statement, which also criticised the central bank for being too timid.
Australian Workers Union national secretary Paul Howes also urged a cut in interest rates.
Speaking before a crisis meeting of steel workers in Melbourne, he said the Reserve Bank ''has made the wrong call consistently'' on interest rates. So far this year, the RBA has kept the cash rate at 4.25 per cent.
However, economics professor Warwick McKibbin, who was on the RBA board for 10 years until July last year, defended the bank, telling ABC TV it was ''getting it right'' on rates.
Mr Evans said mortgage holders appeared to be the most pessimistic after the RBA's decision to leave the cash rate on hold for the past three months.
Confidence among borrowers fell by 5.1 per cent, compared with an increase in confidence of tenants of 7.4 per cent. Respondents who wholly own their houses had a smaller fall in confidence of 1.7 per cent.
Australian National Retailers Association CEO Margy Osmond said: ''ANRA wants to see the Reserve Bank of Australia take a knife to the cash rate and relieve the stress placed on families who are already suffering with increasing utility bills and rising petrol costs.''
The plunge in consumer confidence comes as new Australian Bureau of Statistics data shows the number of home loan approvals fell for a second consecutive month, prompting the Housing Industry Association to join calls for an interest rate cut.