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Weak services sector highlights case for further rate cuts

Staff Reporter 1 minute read

Persistently weak demand has seen the services sector report a ninth monthly decline in activity, according to the Australian Industry Group (Ai Group)/Commonwealth Bank Performance of Services Index for December released today.

The Index rose marginally by 1.5 points, seasonally adjusted, to 39.3 but remains well below the key 50 point separating expansion from contraction.

Activity in the finance and insurance sector continued to contract albeit at a more moderate rate.

While it is hoped the Government’s stimulus package combined with a lower interest rate environment will boost the sector later this quarter, Heather Ridout, chief executive of the Ai Group, believes further RBA action is needed.

“The results suggest that the Reserve Bank will need to revisit interest rates and make further cuts in early 2009,” she said.

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Commonwealth Bank senior economist John Peters said the bank expected rates to fall by a further one per cent to 3.25 per cent by April.


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