It will take more than an interest rate cut to lift confidence – the federal government has to come up with a solid budget plan as well.
That’s the view of Australian Chamber of Commerce and Industry chief Kate Carnell ahead of Tuesday’s Reserve Bank board meeting.
Financial markets are forecasting a greater than 60 per cent chance of a 25 basis-point cut in the official cash rate, taking it to an all-time low of two per cent.
If banks follow such a cut in full, it will save people with an average mortgage of $300,000 around $45 on their monthly repayments.
“Any reduction is welcome, there’s no doubt, but without a solid plan in the budget, business confidence, consumer confidence won’t track up,” Ms Carnell told reporters in Canberra on Monday.
She was releasing the chamber’s latest business expectations survey for the March quarter.
It found firms with a fairly grim outlook for the economy over the next 12 months, as well as predicting falls in a range of indicators, including profits, employment, and investment.
Ms Carnell said the result were “deeply concerning”, but the May 12 budget does give the government the opportunity to restore confidence with a solid plan.
She said new budget forecasts by Deloitte Access Economics showing a hefty deterioration in budget deficits across the forward estimates shows that “business as usual is not good enough”.
However, there was more positive news for Treasurer Joe Hockey as he puts the finishing touches to his second budget.
Building approvals for new homes rose a further 2.8 per cent in March to be 23.6 per cent higher than a year earlier.
Also, ahead of Thursday’s crucial labour figures, new job advertisements data compiled by ANZ rebounded 2.3 per cent in April after falling for the first time in 10 months in March.
Monthly inflation figures proved benign, showing prices growing at just 1.4 per cent over the year and well below the RBA’s 2-3 per cent target.
“The combination of sub-trend GDP growth, lower terms of trade and a low inflation environment all tilt the odds towards the RBA delivering a 25 basis point cut,” TD Securities chief Asia-Pacific strategist Annette Beacher said.