It’s always interesting to see the economists come out with their opinions both before and after an RBA meeting. For those who didn’t predict the rate cut, they always manage to quickly come up with some data to ‘cover their tracks’ while those who correctly predicted the rate cut go out trumpeting how good they are and then predict, with new found credibility, what will happen at the next meeting.
I enjoy reading what all these economists have to say and also some of the ‘spats’ that a few of them have with each other. Call me boring, but I also enjoy keeping an eye on the various indexes and figures which provide a bit of guidance as to where monetary policy may be headed in the future.
However, there are a couple of economists for whose opinion I have great respect. Not only because they seem to get it right more often than not but also because their opinions are based on solid research and foundations as well as a healthy mix of what’s happening out on the street. In other words they don’t just sit in front of their computers poring over graphs and making predictions based on trendlines and numbers.
Both of these economists are predicting further rate cuts, with the next one likely in February 2012. Given the RBA Board don’t meet in January, this leaves the December meeting where perhaps the Board will sit tight and allow Christmas to take it’s course to see how the retail figures stack up over that period. They also predict another rate cut late in the first half of 2012.
For most of us with a home loan this will be welcome news. On the average mortgage, each 0.25% represents approximately $50 per month less interest which can either go towards balancing the home budget or even better, go towards reducing the principal amount on the home loan and therefore save interest and pay the home loan off a few years earlier. Certainly if we see another two rate cuts then the extra $100 per month will be a real bonus.
Of course, for every winner there is a loser and those who have money in savings accounts will no doubt not be happy with rate cuts as the banks lower the interest rate offered on savings accounts accordingly.
As for my own personal predictions, I think we will likely see a rate cut in February, particularly if the Christmas retail spend remains low and unemployment continues to creep up. Interestingly consumer confidence has crept up in the last couple weeks but that could just as easily decline again after the initial jubilation over the rate cut subsides in the lead up to Christmas. As for any rate cuts beyond February I think that will largely depend on how households and business cope with increased utility costs, introduction of the Carbon Tax from mid 2012, rising unemployment, share market performance over the next few months and whether the recent uptick in consumer confidence turns to decline again. And of course we need to keep a close eye on Europe and the economic instability in that region. If any, or all of those factors get worse then I think we will almost certainly be in for further rate reductions through 2012.
Mark Lewis is the Executive Chairman of Bernie Lewis
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