Rate cuts:there’s still hope

The Prime Minister and the Reserve bank are both offering some hope of further rate cuts, despite the present pressures on bank margins.

This is clear from statements they made yesterday.

“We are facing a much more difficult set of economic circumstances,” Kevin Rudd admitted in Federal parliament yesterday as

he was  comparing the impact of the current  global economic crisis, with those which had accompanied previous economic downturns.

And Mr Rudd has previously said that Australia’s unemployment will get worse before it gets better.

He was  speaking shortly after the Reserve Bank released the minutes of its board meeting earlier this month, at which  it had decided to keep interest rates on hold. They showed that the bank’s board is still very cautious about rates, noting that monetary policy had already been eased “significantly.”  However the minutes also contained one statement, which really stood out.

That was:-”…there was still thought to be a possibility of further easing in the months ahead.”

Put the Mr Rudd’s remarks – and those of the Reserve Bank – together and they add up to a real chance that Australia’s interest rates will, in fact, be cut at least once more, later this year- even though Mr Rudd also said that the nation’s interest rates are already “at a 40 year low,”

The Reserve Bank  noted some positive signs.

It said the latest information suggests that the global economy is finally “stabilising.”

The bank said that is happening after “two very weak quarters.”

“Members judged that the most likely outcome, over the next year or two, would be subdued global growth overall, as households and financial institutions in many major countries would be repairing balance sheets for some time…

“This suggested that spare capacity would be increasing and inflation tending to decline for some time ahead.”

The bank added that “downside risks” had lessened.

In short, things are likely to get better, slowly.