Australian interest cut earns rebuke

By Phil Boeyen, ShareChat Business News Editor

Wednesday 5th September 2001

Standard & Poor's has criticised today's Australian interest rate cut, saying the drop has been made on a 'flimsy basis'.

The Reserve Bank of Australia has lowered the country's official cash rate by 25 points to 4.75%, the fourth time it has lowered the rate since February. In that period the bank has dropped interest rates by 1.5% or 150 points.

While the bank has supported its move by noting that the timing for a recovery in the world economy has been pushed back, Standard & Poor's says such observations are "ill at ease with signs of a bottoming out in the US'.

"Moreover, the speed and depth of the adjustment in the US, Japanese and other economies argues for an equally rapid and powerful upswing during the course of next year," the financial agency says.

"These observations would have been more appropriate for another easing during Q2, rather than at the tail end of Q3."

The RBA also claimed that while Australia's domestic economy is holding up well, 'softening in some categories of exports can already be observed'.

However S&P says Australia rarely imports recessions from overseas.

"Australian recessions are typically home-grown affairs, with the local economy more often than not leading rather than following the world into recession."

Standard & Poor's says the RBA has once again taken a medium-term view on inflation and with the official cash rate now at its previous cyclical lows, it is difficult to make a strong case for further easing.

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