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An interest rate cut is not assured

Down, up, no change. Which way are interest rates heading?

Ask three of the big 4 banks and they’ll each have a different opinion.

Westpac continues forecast an interest rate cut before the end of the year following the release of the minutes from the September RBA monetary policy meeting. But other bank economists disagree.

Westpac chief economist Bill Evans says the minutes suggest an October rate cut is a possibility, but he believes December to be the most likely date.

Evans notes the extensive use of the word “weak” when describing domestic economic conditions in the minutes – “for private non-residential building approvals; for the housing market; and for the demand for credit”.

In its minuets the RBA noted: “For the present, however, members considered that the current setting of monetary policy left the board well placed to respond to evolving global and domestic economic conditions.”

On the other hand, the Commonwealth Bank expects a rate rise in the first quarter of 2012 while NAB expects rates to remain on hold until November next year.

What do I think?

I expect rates to drop in the short term, either later this year or early next year in response to a weaker local economy (in the short term) then to slowly rise again as our economy picks up and inflation increases due to our improving economy and the fact that our falling Australian dollar will increase inflation.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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