RBA still struggling to come to terms with consumer spending freeze

RESERVE Bank board members say a spending freeze by consumers could in part reflect a routine lag in the impact of rate cuts.

But the board has signalled it is nonetheless prepared to cut the cash rate to a fresh alltime low of 0.5 per cent when it reconvenes in February.

Minutes from its monthly meeting on December 3 showed board members noted monetary policy had “long and variable lags”.

They acknowledged indebted consumers might take time before lifting their spending in response to three rate cuts, each of 0.25 percentage points, over the past six months.

Economists seized on the board members’ comments that it would be “important to reassess the economic outlook” when they next met, in February, and prepared updated forecasts.

A fourth cut in nine months is widely expected after the summer recess as the central bank seeks to stimulate an economy sagging under the weight of rising unemployment, stagnant wages and poor business investment.

The board members acknowledged the RBA could “provide further stimulus to the economy if required”.

Royal Bank of Canada strategist Robert Thompson said the RBA’s commentary was telling.

“[It] looks a little portentous as we look to the next meeting in February,” he said.

The December board meeting preceded the release of more lacklustre figures on retail spending and economic growth, while employment statistics due tomorrow are also expected to be tepid.

Westpac economists have said consumers are on a “spending strike” despite rate cuts and the Federal Government’s tax-rebate payments in recent months.

Federal Treasurer Josh Frydenberg was this week forced to slash his forecast for growth in gross domestic product for the year to next June from 2.75 per cent to 2.25 per cent.