westpac pushes for half point rate cut

i aint a bank lover as we all now but to be fair wp are doing the right thing. go wp.

Westpac pushes for half-point rate cut

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* Peter Martin
* August 21, 2008
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WESTPAC has stepped up pressure for a cut in official interest rates of half a percentage point next month, arguing that the economy is weaker than widely believed.

The Reserve Bank had been considering cutting rates by an initial 0.25 percentage points, then later adding further cuts as needed.

But the Westpac Leading Index, prepared with the Melbourne Institute, has Australia's annualised rate of economic growth diving to 2% in the months ahead, far weaker than had been forecast by Westpac and most private forecasters.

The new forecast is about the same as the Reserve Bank's forecast released last week with its quarterly statement.

The Leading Index is made up of eight separate measures, including company profits and productivity, combined to give a guide to the likely pace of economic growth in three to nine months.

"It is now clear that we need a significant easing in interest rates," Westpac's chief economist Bill Evans said.

"This is the slowest growth rate of the index since July 2001 and the sharpest fall in the growth rate since 2000.

"There is a strong case for the Reserve Bank to move by a larger amount, by 0.5%, particularly given that at the beginning of a rate-cut cycle it's best to have your biggest move, because that's when it's safest because that's when rates are at their highest."

A cut of half a percentage point would take $90 off the monthly cost of repaying a $250,000 mortgage if fully passed on by the banks, cutting their standard variable mortgage rates from about 9.6% to 9.1%

The Reserve Bank has not taken a complete 0.5 percentage point off official interest rates since February 2001 - coincidentally the last time it began a series of cuts and the last time the Westpac Leading Index was growing so slowly.

Separate figures released by the Department of Employment yesterday lent weight to Westpac's concerns.

Its skilled vacancy index fell a further 1.7% in trend terms in August, with the number of job vacancies down in all but four of the 18 professions monitored.

The index has fallen 11% in the past year, suggesting that employers are less keen to take on staff, and easing concerns about wage-driven inflation.

The Reserve Bank board meets on September 2.