Reserve bank to rule on rates today

We will know at 2.30pm.

That is whether the Reserve will, once again, keep Australia’s interest rates on hold, as most economists expect.

Or, whether it will cut them, yet again.

It certainly has room to do so.

The ANZ jobs index, released yesterday, showed job advertisements 6.7 per cent down in June, to a level more than 50 per cent below that seen 12 months earlier.

And there have been few, if any, clear signs yet that the global economic crisis will pass any time soon.

Inflation, for once, is not an immediate threat.

So why shouldn’t the Reserve Bank cut rates?

Well, the Federal government’s powerful stimulatory measures still have to work their way through the economy.

That’s one point.

At this stage, though, any decision on rates will, essentially, be based on tactical considerations.

And there is one, very powerful, reason why the Reserve Bank board may well decide to sit on its hands.

Any rate cut now would, ultimately, be meant to stimulate the economy.

But there is good reason to doubt whether it would actually do so.

Australia’s big four banks used the last rate cut, essentially, to repair their own balance sheets.

They might well do that again if there is another rate cut today.

The  Reserve Bank is also facing a new problem, with its cash rate target, which now stands at 3 per cent.

Its dilemma might be encapsulated in a simple phrase.  How low can you go?

That question will certainly be before the Reserve Bank board, when it meets today.