Clamour grows for new rate cut

By GREG ANSLEY

CANBERRA - The Australian Reserve Bank is under pressure to further reduce interest rates amid a dramatic slump in consumer confidence and a rising tide of grim economic news.

The Westpac-Melbourne Institute index of consumer sentiment plunged 15.4 per cent from February - the biggest monthly fall in the survey's 25-year history.

It matches the National Australia Bank's latest business survey, which reported the lowest level of business confidence since the recession of the early 1990s, and growing alarm at the record depths reached by the Australian dollar.

More pointers to rapidly cooling growth are likely today, with the Bureau of Statistics' latest labour force figures expected to show the loss of up to 20,000 jobs in February.

The only bright glow came with figures showing the gains exporters have reaped from the low dollar.

The Australian Bureau of Agricultural and Resource Economics said yesterday that mineral and energy export earnings climbed 11 per cent in the December quarter to a record $A14.7 billion, their sixth consecutive quarterly rise.

But last week's news of negative GDP growth and front-page speculation on a looming recession has alarmed both business and consumers and renewed calls for further interest rate reductions.

Commentators yesterday predicted that rates would ease by a further 1 per cent by July, following the two recent cuts that reduced cash rates by 0.75 points to 5.5 per cent.

"With world growth looking weak, Australia will be relying on a boost to domestic demand to avoid a prolonged recession," said Bill Evans, Westpac's general manager, economics. "This points to the need for aggressive cuts in interest rates, which are required immediately."

The good news of lower interest rates had been swamped by gloomy reports on the economy, pointing to a likely further downturn in consumer spending in the next few months, he said. Sectors likely to be hit included major household items and motor vehicles.

The Government has already moved to arrest the free-fall of the housing industry, bolstering lower interest rates with a doubling of the first home buyers' grant to $A14,000.

But Westpac said yesterday that the 5.8 per cent fall in housing finance in January was double market expectations and the increase in first-home grants would probably benefit the sector only at the margins.

Westpac economist Harley Dale also said that while interest rates would ultimately set the sector back on its feet, increasing uncertainty and a darkening employment outlook would overshadow housing in the short term.

The bank's index of consumer sentiment held broader implications for the economy, with spending likely to contract in key retail sectors and fears that Australia could talk itself into recession.