COMMERCE QUEENSLAND CALLS FOR SIX MONTH RATES STAY

THE Reserve Bank of Australia (RBA) will need to keep interest rates at 4.5 per cent for the next six months if it wants to see business investment recover, says Chamber of Commerce and Industry Queensland (CCIQ) president David Goodwin (pictured).

Goodwin says there is great relief the RBA left rates unchanged today, but the level needs to be kept for a longer period if there is to be business stability.

“I think it’s a sensible approach, because retailers needed a good Christmas, they’ve held on for dear life for the last 12 months – as stimulus spending came off we’ve seen the economy slow down,” he says.

“There’s been a lot of uncertainty with the new (Federal) government and that uncertainty has come back to smaller investors, while the exchange rate has been going up strongly, hitting manufacturers and industry.

“Business needs to have a period of six to nine months so that business can stabilise – I don’t think rates will go up in November, December, or January, so come February there’ll be time to assess how Christmas went.”

In the RBA’s announcement today, governor Glenn Stephens said the prospects for private demand and business investment have improved, which is to be expected given a large rise in the terms of trade.

With the exception of tobacco taxes, he points out inflation has run at around 2.75 per cent for the last 12 months, which is within the RBA’s target values and looks likely to continue in the near term.

“The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being,” he says.

“If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.”