10 Oct 2011

RBA signals possible interest rate cut

7:09 am on 10 October 2011

The Reserve Bank of Australia has signalled it may cut interest rates as inflation pressures ease and demand slows there.

AMP's head of investment Shane Oliver says data showed a patchy economy that continues to grow.

But he says weaker global growth and growing signs that European banks are reluctant to lend to each other means there's a better than half chance the central bank will reduce the cost of borrowing next month.

Mr Oliver says overall the economic data in Australia in the last week has been a bit better than in the last few weeks.

He says building approvals rose slightly, there was a gain in retail sales for the second month in a row, and the trade balance rose to its biggest surplus in over a year.

Mr Oliver says against that a survey of manufacturers and construction companies continued to weaken.

He says overall the data in Australia is consistent with growth continuing but at a subdued pace.

Mr Oliver says he believes the RBA has gone from a tightening bias, or an inclination to raise rates to an easing bias, which will ultimately clear the way for a rate cut probably as early as next month.

He says surveys of business and consumer confidence are out this week, and he suspects sentiment will reflect the bad news that has come out of Europe.