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Rate cut a real reward for industry

The Australian Industry Group (Ai Group) has supported the RBA’s 0.75 per cent interest rate cut announced this week, saying it is a “big step in the right direction” for our industry.

According to Ai Group chief executive, Heather Ridout, Australian businesses — including automation, control and process engineering suppliers — have been “deeply affected” by the global downturn in the economy, announcing this week that it is set to worsen considerably before it gets better.

“Industry endorses the decision by the RBA to reduce interest rates by 0.75 per cent. Coupled with the reductions announced over preceding months this means an effective rate reduction of 2 per cent since September this year,” said Ridout in an industry statement.

“Australian business is being deeply affected by the global downturn in economic activity, which looks set to worsen, and today’s decision by the RBA is recognition of that fact,” she said.

Ridout also said there remains scope for further rate reductions.

“There is little doubt that Australian interest rates remain positive in real terms; significantly higher than many of our key trading partners and neutral in terms of its impact on economic activity. Falls in both the Australian dollar and the price of petroleum have provided partial relief. However, there remains scope for further rate reductions — scope that will be tested in the months ahead,” she said.

According to Ridout, certain economic data released this week suggests the local economy is slowing “rapidly”, with business confidence at a low, suggesting the outlook for 2009 is bleak.

“Yesterday’s publication of a special Ai Group survey showed that the effects of the global economic and financial crisis are already biting hard with the impacts set to intensify in the ‘real economy’ over the months ahead,” she said.

These findings have also been uniform in international markets.

“Most of Europe [is] mired in recession, [with] overnight data from the United States showing industrial activity falling to its lowest point for 26 years, and even the formerly impregnable Chinese economy experiencing record drops in manufacturing confidence,” said Ridout.

“Less than a year ago, very real fears that our economy might overheat led to increases in Australian interest rates. Those fears are now receding, and with the economic tide firmly on the turn it is essential that Australian industry is not left ‘high n dry’ with interest rates that fail to reflect today’s economic reality. The announcement by the RBA is therefore a big step in the right direction.”

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