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The Reserve Bank of Australia (RBA) and the nation’s retail banks should cut interest rates further, a leading business lobby group says.

The International Monetary Fund (IMF), in its latest World Economic Outlook released on Wednesday, forecast Australian growth to shrink by 1.4 per cent in 2009.

Australian Chamber of Commerce and Industry chief executive Peter Anderson said it was “bleak news” for business when coupled with government and RBA acknowledgments that Australia’s in recession.

“In the wake of this bleak news there is a stronger case for the Reserve Bank, when it next meets, to further reduce interest rates,” Mr Anderson told reporters in Canberra on Thursday.

“They have not fallen as low as they should fall.”

He said it was also vitally important that retail banks pass on the full value of interest rate reductions that had occurred in the official cash rate in recent months.

“That has not occurred and should occur and is hampering the capacity of our economy to withstand the severe buffeting from this recessionary environment,” Mr Anderson said.

But he said it was “critically important” that the bleak news did not overwhelm the country’s confidence “into a self-defeating cycle of woe”.

“That would compound the problem and it will mean that this recessionary environment is longer and deeper and has a more severe impact on our business community and our employees than is necessary,” he said.