Interest Rate Outlook - to drop or not to drop?
After an unprecedented cut of 4 percentage points in official interest rates since September 2008, the RBA thinks there’s a chance it may have done enough to limit Australia’s downturn to only the next one or two quarters, and if it hasn’t at least they have retained some ‘ammunition’ to bolster flagging confidence should conditions worsen later this year.
In the United States and Japan for example, official interest rates are already near zero compared to our 325 basis points of rate cuts still up our sleeve. Prompting the RBA’s decision to hold steady this month is the release of trade data showing ‘positive economic growth’ in the fourth quarter, and from a presentational viewpoint, it is easier to keep rates steady when the economic news is positive rather than negative.
However, the predicted ‘continued inability’ of America and Europe to deal with their banking problems and a collapse in our own housing demands, would be concern enough for the RBA to spark further rate cuts by next month, and so it is expected to drop by a quarter or half point, bringing our official cash rate to 275, or even 225 within the next 6 months.
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