Rate cut likely after weak retail sales

A December interest rate cut is looking more likely after official figures showed retail spending remained flat in October.

Figures released by the Australian Bureau of Statistics on Monday showed retail spending was steady in October, below expectations of a 0.4 per cent rise.

HSBC Australia chief economist Paul Bloxham said the figures meant it was more likely the Reserve Bank of Australia would cut the cash rate at its December board meeting on Tuesday.

"The steady retail numbers give the RBA more motivation to cut interest rates tomorrow to provide a bit of support ahead of Christmas," he said.

The RBA kept the cash rate on hold at 3.25 per cent in November.

Mr Bloxham said other ABS data released on Monday showed company profits fell 2.9 per cent in the September quarter, seasonally adjusted, while estimated business inventories, in seasonally adjusted chain volume terms, rose 1.1 per cent over the same period.

He said those figures suggested national accounts figures released by the ABS on Wednesday would show a modest increase in Gross Domestic Product over the September quarter.

"This suggests that GDP when we see it on Wednesday is probably going to be a positive but modest number so there is little really standing in the way of the RBA (cutting the cash rate)."

CommSec economist Savanth Sebastian also said weak retail numbers could push the central bank to consider a rate cut on Tuesday.

"All the data today really paves the way for the Reserve Bank to cut rates," he said.

"There seems to be a lack of strength in retail - consumers remain conservative, and if anything, trading conditions continue to remain tough despite previous rate cuts."

RBC Capital Markets currency strategist Michael Turner said the business indicators and retail trade figures boost the possibility of a cash rate cut by the central bank on Tuesday.

"There was a soft undertone to that data," he said.

"We think there will be a 25 basis-point interest rate cut tomorrow, it's just a matter of how wide they leave the door open to more cuts in the new year."

Mr Turner said a 20.7 per cent fall in mining profits was a key factor in the fall in company profits.

"That was mainly due to the recent fall in commodity prices," he said.

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9288-0.0077-0.82%
    AUDUSD=X
    0.5535-0.0031-0.56%
    AUDGBP=X
    0.6723-0.0061-0.90%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg