Latest rate cut ‘may not give economy much of a boost’

The impact of the federal Budget on Australia’s economy is likely to overshadow the Reserve Bank’s latest rate cut, according to one industry veteran.

John Kolenda, director of 1300HomeLoan, said the 25-basis-point rate cut last week was another effort by the RBA to boost business and consumer sentiment and stifle the “still-high” Australian dollar.

However, Mr Kolenda said last week’s rate cut could be overshadowed by the government’s second Budget.

“With so much uncertainty about what will be delivered by Treasurer Joe Hockey in [tomorrow’s] Budget, this latest rate cut may not give the domestic economy much of a boost,” he said.

Mr Kolenda said despite assurances that the 2015 Budget will be softer than last year’s, forecasts of a fiscal blow mean that uncertainty remains as to whether there will still be some tough measures.

“The RBA may have been better off hanging on for another month and assessing the impact of the Budget,” he said.

“This latest rate cut also flirts with the potential dangers of further overheating the property market, particularly in Sydney.”

Mr Kolenda said the possible downgrading of Australia’s triple-A credit rating and its impact on the big four banks is another concern.

“This might force their ratings to be cut while also lifting their funding costs and hampering access to offshore cash,” he said.

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