I believe that last months drop of 0.75% in the official cash rate was supposed to be passed on to borrowers in its entirety; that is what I think the Reserve Bank had in mind. Thus far, it has not happened and given the banks current position of posture they seem to have been let off the hook with the Federal Government hardly making mention of it.
With that in mind… along with the inevitable delay of a few months that it takes before an interest rate cut has any real positive impact on the economy I expect that when the RBA meets next Tuesday they will drop official interest rates by at least another full 1.0%. I say “at least” because if there is any indication that the banks may hold onto anything this time around, I suspect they will go further.
The month of December is vitally important for our retail sector and this is their final opportunity for the year to give consumers the confidence to spend and support businesses and jobs alike. The Government’s $10.4b stimulus package will be released into the economy on Monday week. While this is also expected to have a positive impact on consumer spending it is likely to fall short of what the Government had hoped as many recipients of this money are expected to save it for future possible “rainy days” in 2009.
While I would not go so far as to predict a rate drop of 1.25% or even 1.5% (i.e. 125 or 150 basis points); neither would come as a shock. After Tuesday, the RBA is not scheduled to meet again until February 2009 so there may just be a bigger kick along now to carry the economy through. While the RBA can call a meeting in January 2009, or anytime they like, I suggest their first preference will be to use the December 2008 meeting and avoid the need to interrupt their Christmas break.
Even if next weeks rate cut is just a fraction of what I expect this is all good news for home owners and investors alike.
Happy Investing,
Nick Lockhart
mrd customer care program… because investing is personal
Reader Comments
RBA Interest rate cuts are not good news for everyone, bank term deposit and bond rates will fall further with any RBA rate cut and the incomes of retirees, and others who invest in the cash market. will reduce accordingly.
This will be especially felt if inflation does not also fall during the December quarter.
The Aust $ can also be expected to fall following a further cut in the RBA rate.
In my opinion it would be better for the RBA to wait for the December inflation figures before changing its rates further.
It’s official; RBA has reduced interest rates today by 100 basis points (or a full 1.0%).
See the statement made by the RBA Governor… Glenn Stevens:
http://investmentmentor.com.au/2008/12/02/statement-by-glenn-stevens-governor-monetary-policy/
CONGRATULATIONS ARE AGAIN IN ORDER.
Most predicters on air this morning tipped .75%
Only Stephen Mayne (crikey,com) followed you with 1% maybe even 1.25 or 1.5 I was going to ring in and ask if he got the prediction from you, but didn’t want to embarrass him.
Hi Geoff,
You are correct in saying that interest rates are not good for those relying on returns from cash invested. When the value of the dollar goes up there are winners (such as importers)and losers (such as exporters)… and vice versa. I am a property investor and in the business of helping others on their investment journey. So for us any drop in the interest rate is a good thing.
To me your comment further highlights why I am building a residential property portfolio; which over time out performs cash as an asset class, in my opinion.
Thanks for your comment.
Nick