RBA urged to cut interest rates to prevent recession in Australia


A TOP economist and the Federal Opposition have urged the Reserve Bank to cut the cash interest rate by at least 0.25 percentage points to avoid recession.

Dr Shane Oliver said the RBA risked joining Europe in falling “behind the curve” by failing to act as European and US debt worries sent share markets plunging last week. 

“This is not a time when state and federal government should be becoming more highly indebted, and they are,” he told ABC TV.

In response to the calls Finance Minister Penny Wong accused the federal opposition of talking down the economy. 

Senator Wong said Australia has already demonstrated it has the strength to survive turbulent times. 

She told ABC Radio it’s true the global economic recovery is fragile but if the coalition cared about the Australian economy they wouldn’t be trying to talk down and undermine confidence. Make the cuts now 

Experts are calling on G20 leaders meeting in Washington to detail a structural action plan to give certainty to Greece and southern European economies, as speculation mounted that EU leaders were trying to assemble a $2 trillion bailout. 

Dr Oliver, AMP Capital’s chief economist, said in Australia home sales and retail spending were “comatose”. 

Recession, not inflation, was the concern. 

“Interest rates have to come down or we risk getting into a downward spiral where falling confidence leads to reduced spending which leads to higher unemployment. It’s now starting to happen.”

The RBA should cut the cash interest rate from 4.75 to 4.5 per cent at its October meeting. 

“And if we got through another week like last . . . we need to . . . cut by 50 basis points,” he said. 

“There is a risk that our policy makers . . . will get behind the curve. We need to act now.” 

Belinda Bonetti believes the Government should reduce spending to take pressure off interest rates. But we will need the Reserve Bank to act. 

Posted by: Belinda Bonetti, Perry Finance


News & Resources