Debt collector decries rate cut

Reserve Bank of Australia may have taken its foot off the interest rate brake too soon, when it cut rates earlier this week, a debt collection agency says.

Prushka Fast Debt Recovery chief executive Roger Mendelson said consumers could use the rate cut as an excuse for a spending splurge and rack up more personal debt.
Based on the evidence from our own database, it indicates there is no crisis and we are long way from that.''

The central bank cut interest rates by a quarter of a percentage point to 7% this week in a bid to boost the slowing economy.
It was the first cut to the official cash rate since December 2001, after the RBA raised rates 12 times to a 12-year high of 7.25% to curb rising demand and inflation.
Mr Mendelson said he doubted the market's forecast for many more cuts in the near future.

"I don't think there is going to be a rapid succession of rate cuts unless there is a real deterioration in the economy,'' he said.
"The Reserve Bank seems to be keeping its option open.
"It is why I believe there had to be a climate of fear around to keep consumers focus on reducing consumption, but also actually reducing debt.''
Consumer debt, though, was still too high in Australia, Mr Mendelson said.
"That is an underlying problem in the country,'' he said.

"Higher interest rates help to keep the pressure on the consumers to reduce spending.''
Consumers should use the extra cash courtesy of the recent fall in rates and any future cuts to repay their debt, Mr Mendelson said.
"Otherwise, that is going to come back to bite us,'' he said.

"That could emboldened consumers again, and we don't need that at the moment.''
There were two ways for household debt to fall, Mr Mendelson said.
"Consumers rein in their spending,'' he said.
"And they don't occur greater consumer debt to fund consumption.''

"There is evidence that consumer spending has been declining, but it has taken a very long time to get to that point.''
Retail sales data for the June quarter from the Australian Bureau of Statistics confirmed this decline with spending down 0.6%, seasonally adjusted, in the three months.
People should consult a financial adviser or accountant if they have concerns about their finances, Mr Mendelson said.

"An hour or two with a accountant would really offer helpful advice to help people budget and look at their cashflow,'' he said.
Mr Mendelson said if a person defaults, it ends up their credit file.