RBA keep rates steady
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The Reserve Bank of Australia (RBA) kept rates steady at a near 50 year low of 3.00% yesterday amid increasing levels of positivity about the state of the Australian economy.
Glenn Stevens the Reserve Bank Governer indicated the RBA still had room to reduce interest rates should the need arise due to the marginal impact of inflation in the current forecasts. While Glenn Stevens indicated the RBA still had scope to cut rates the general tone was positive and the state of the Australian and global economies would have to further deteoriate for the RBA to consider a cut.
It is highly likely we have either seen the bottom or are with 0.25% of the bottom of the cycle. Some forecasters are already looking at an increase in early 2010 as the uptick takes hold.
NZ Reserve cut rates to 2.5%
During the week the New Zealand Reserve Bank cut the official cash rate by 0.50% to a record low 2.50%. The cut to the official cash rate is likely to stay at or current or lower levels into 2010 as the New Zealand economy continues to struggle.
What will the RBA do in March?
Well March is just around the corner and the next RBA meeting will decide on monetary policy for another month. Since September 2008 the RBA have cut rates by 400 basis points, what does March have in order for home owners, investors and the economy?
Glenn Stevens perhaps has one of the hardest jobs in Australia. Stevens has to decide if enough liquidity has been pumped into the local economy with recent interest rate cuts or if more is required to stimulate domestic demand.
The result by Harvey Norman and the halving of profit is an omen for the consumer hed Australian economy and an indication that things are likely to get much worse before they get better.
Consumer demand despite government stimulation before Christmas has failed to bounce post Christmas as households tighten belts with increasing job losses and negative sentiment affecting the economy.
The RBA boss has already indicated that he would like to sit back and assess the economy in light of all the recent economic stimulants announced by the government and any future rate cuts are unlikely to be as big as recent cuts.
I suspect we will see a cut of 50 basis points in March that will take us to a cash rate of 2.75%. Future cuts will likely continue to occur and could take us down to 2.00% in the coming months but Stevens will be monitoring the economy for worsening economic news before he pulls the trigger for big future cuts.
RBA signal slowdown in major rate cuts
The RBA have given a clear indication that future cuts will be much more moderated and the chance of major cuts may be over with the release of their quarterly statement on monetary policy.
The rate cut this week took the RBA rate to a 45 year low. With the fiscal stimulus of recent rate cuts and the Government’s stimulus package the economy the RBA is likely to sit back and monitor the impact on the domestic economy before further cuts.
The RBA expects growth of 0.25% in 2008-09, while forecasting 1.25% in 2009-10. Perhaps even this estimate could be excessive in the global malaise continues.
RBA cut rates by 100 basis points
The Reserve Bank of Australia cut rates by 100 basis points today to take the official cash rate to 3.25%. The cut comes on the same day as Prime Minister Rudd announced a $42 billion fiscal stimulus aimed at short and long term benefit to stimulate the Australian economy and protect jobs.
The RBA have now cut the cash rate by 300 basis points since September 2008 to the lowest point since 1964.
Next month is not likely to see as greater cut as those of recent months as the RBA look towards the Government’s fiscal stimulus to kickstart the domestic economy from the global turmoil inflicting markets.
RBA to slash rates
The Reserve Bank of Australia is expected to slash rates by 100 basis points this week as the Australian economy is in recession and looking down the barrel of a world economy that has badly derailed.
With the world in recession the RBA will need to act swiftly to reduce interest rates in a move to boost domestic growth and inspire confidence in a domestic economy that badly needs a boost amid rising unemployment and falling consumer spending.
With inflation no longer the problem, that it has been in recent years, the brake is no longer on Glenn Stevens allowing him to act decisively to boost domestic growth. The Australian government are also likely to support the domestic economy with another rescue package expected to be announced in coming days.
Australian Bank Watch will announce the rate cut when announced this week.
RBA set to cut by 0.75% in February
With the Australian economy struggling and fears of a doubling in the unemployment rate over the life of the current economic cycle the Reserve Bank are likely to react swiftly again by slashing rates by 0.75% in February. This would take rates to 3.50%.
The money markets have already priced such a cut into the market as the Australian economy balances on the edge of a knife with increasingly negative news each day.
With concerns of rising unemployment and falling GDP the interest rate cuts seem a certainty as the RBA is forced to react to prevent failing confidence in the economy. While the cuts with be a huge boost for home owners the general consenus is for harder times ahead as consumers prepare for a tough period in the economy with many fearing job cuts.
Poll - How low with the Reserve Bank of Australia rate go in 2009?
The Australian Bank Watch site has created a new webpoll to see where our visitors think the Reserve Bank of Australia’s interest rate will be at the end of 2009?
The RBA has acted swiftly in recent months in response to the growing global credit crisis and in October cut rates by a surprise 100 basis points.
The RBA followed suit again on Melbourne Cup day, the 4th November, delivering another 75 basis point cut to take the rate cut in the last two months to a massive 175 basis points.
This sizable cut reflects the genuine concern the RBA shares with regard to not only the health of the global economy but it’s effect on the domestic economy and domestic consumption.
Already unemployment has shown signs of rising, consumer spending has slumped, the AUD had been smashed and the the previously unstobbable commodity boom has slowed considerably.
The RBA have indicated a likelyhood of further cuts but are also tempered by inflation and any interest rate cuts will be impacted upon by the inflation rate that with be high on the Glenn Stevens mind come future rate cuts.
I am tipping an RBA rate of 3.75% by the end of 2009. It’s a bold prediction of 1.5% below current levels but I suspect this is where it will need to fall before it can stimulate the domestic economy.
What do you think? Take our poll and share your prediction or comments on the RBA rates outlook.