On the contrary, inflation is so low that at best, it might touch 2 or 2.25 per cent in a year or so and the decline in house prices might slow to 0.5 per cent per month even if official interest rates were slashed to 0.5 per cent, some 100 basis points below where they are today. Any interest rate cuts would almost inevitably see the Aussie dollar fall, helping the export sector to grow.
Free money, in other words, to our export sector from easier monetary policy.It would also free up cash flow for the business sector, which has a little under $1 trillion of debt meaning it would be easier to service its collective debt with lower interest rates.
And then there is the ever fragile consumer. With around $1.3 trillion of debt, a 0.5 per cent reduction in interest costs would save around $6.5 billion a year, money that could be used to reduce debt (which is good) or be spend in the economy (also good). The impact is more than the rumoured size of the income tax cuts that Treasurer Josh Frybenberg will announce in the budget, coincidently on the same day the RBA Board next meets.
Unlike the income tax cuts, which either add to the budget deficit or reduce the budget surplus, interest rate cuts are free!The stroke of a pen and the press of a few keys on a key board is all it takes to get this stimulus into the economy. This would see firms making more money, consumers having more cash in their pockets and incentive to hire more workers and pay them more raised.
Interest rates cut would actually improve the budget bottom line because of the stimulus they give to spending, inflation and tax revenue.It is the proverbial no-brainer. So for the RBA Board, there is not that much to think about.
Cut interest rates on 2 April and again quickly thereafter and sit back and watch the positive effects of those moves flow through the economy. Things will not improve overnight.But like the first antibiotic in a 5 day course of medicine, it will start to heal the otherwise sick economy.