HIA: RBA rate cut would be prudent

Friday, 27 Jan 2012

An interest rate in February would be a "prudent course of action" on the part of the Reserve Bank of Australia (RBA), a senior economist asserted this week.

Speaking on Wednesday (January 25), the Housing Industry Association's Andrew Harvey asserted that the release of new inflation figures for December offers further proof that a rate cut is needed when the RBA meets again next month.

The Consumer Price Index showed a flat December quarter, he said, noting that the figures are "well within the Reserve Bank's inflation target band".

With underlying inflation at 2.6 per cent, Harvey notes that there is "plenty of space to cut the official cash rate" at the RBA's February 7 meeting.

However, he noted that the rate cut will only be effective if It is passed on by all the banks in full - and more measures are taken to safeguard the Australian economy from uncertainty overseas.

Harvey said: "It is appropriate that further interest rate cuts starting next month are accompanied by targeted government stimulus measures to help insulate Australia against what appears to be a deteriorating situation in Europe."

After holding the cash rate steady for 11 consecutive months, the RBA made rate cuts in November and December last year - a move praised by many property industry bodies across the nation.