ANALYSIS

RBA interest rate: Financial experts unsure if cut will help struggling economy

GOOD IDEA?: Financial experts are unsure whether a cut of the official interest rates will help Australia's struggling economy. Photo: FILE
GOOD IDEA?: Financial experts are unsure whether a cut of the official interest rates will help Australia's struggling economy. Photo: FILE

SIGNS of a struggling economy and a looming federal election have left financial experts in the Central West divided on whether a cut to the official interest rate will help.

Earlier this month, the Reserve Bank of Australia (RBA) held the official interest rate at the historically-low 1.5 per cent for the 27th consecutive month.

With the next monthly announcement due on Tuesday, financial experts say the RBA will be considering a wide range of factors in its decision.

MoneyQuest Dubbo director Matt Wright expects the rate will be left on hold, but predicts cuts in August and November.

"They're looking to try and pull a trigger to save some people some money on their interest rates, give them a little bit more confidence and a little bit more money to spend to stimulate the economy," he said.

Mr Wright said slow wages growth and consumer spending along with tightening of credit, inflation and unemployment all impact how much people do or don't spend.

MONEY MATTERS: MoneyQuest Dubbo director Matt Wright preducts rate cuts will happen, but not just yet. Photo: FILE

MONEY MATTERS: MoneyQuest Dubbo director Matt Wright preducts rate cuts will happen, but not just yet. Photo: FILE

The "double election year" also heightened uncertainty for businesses and consumer spending

"That causes a little bit of nervousness as well," Mr Wright said.

"There's a little bit of hesitancy, or they put off a purchase or delay some investment in their business until they see an outcome of an election."

However, even if the RBA does drop interest rates, Mr Wright said that rate cut may not necessarily be passed on by banks to customers due to the declining margins on them acquiring funds.

Also, in the past 12 months many banks have initiated their own interest rate increases or decreases which takes away some of the impact of the RBA's official rates.

The double election year has caused some nervousness.

MoneyQuest Dubbo director Matt Wright

"The stimulus that decreasing interest rates previously provided has been weakened a little bit," he said.

Spencer Fuller and Associates senior financial adviser in Bathurst, Mark Anderson, does not expect the RBA to drop the rates on Tuesday.

He said however, that the benefit of an interest rate decrease was that it made "debt more affordable".

"Debt becomes cheaper which means people can borrow more. People that are sitting on the fence thinking 'is this too expensive' it makes it a little bit cheaper and motivates," he said.

Mr Anderson said cheaper interest rates would encourage businesses to expand and invest in capital expenditure and additional staff.

He said the cooling metropolitan housing market was a significant concern.

"If this housing crisis really winds up a bit more they're [the RBA] going to have to do something," Mr Anderson said.

If this housing crisis really winds up a bit more they're [the RBA] going to have to do something.

Spencer Fuller and Associates senior financial adviser in Bathurst, Mark Anderson

With the RBA's rate already at a record low, the NSW Business Chamber western regional manager Vicki Seccombe feared further drops may not stimulate the economy.

"It's not clear that lowering it further would be helpful, especially when there is evidence to suggest commercial rates have separated somewhat from official lending rates," she said.

"It might even send the wrong signal to the community and lead business confidence to weaken further."

MONEY MATTERS: Western NSW, NSW Business Chamber regional manager Vicki Seccombe said a rate cut may not be the answer. Photo: FILE

MONEY MATTERS: Western NSW, NSW Business Chamber regional manager Vicki Seccombe said a rate cut may not be the answer. Photo: FILE