RBA cut won't be one of necessity

IF THE Reserve Bank of Australia (RBA) elects to cut the official bank rate at its February meeting it won't be out of necessity.

An improving American economy, increasing advertisements for local jobs, a booming resource sector and an inflation rate well within the desired range all make the case there should be no cut in the bank rate.

The data supporting a third consecutive cut are the poor retail figures for last year - the weakest annual growth in 27 years - and the economic situation in Europe.

However, the RBA said domestic matters will have no bearing on its decision.

That means the decision to cut will come down to the international data: good American job figures - 600,000 in the last three months - versus the problems in Europe.

So what of Europe? The current mood in the market is that we are over the worst and the situation is improving. However, despite this data and positive sentiment, the majority of economists expect the RBA to cut 0.25% at their meeting today.

The only logical reason then for a cut is that it is to provide some insurance in case the situation in Europe suddenly does an about turn.

If the cut does go ahead it will mean a $50 saving on a home loan of $300,000.



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