Just when we thought that an interest rate cut on Melbourne Cup day was a certainty our economy started improving and the likelihood of a rate cut decreased over the last few weeks.
But now that the latest inflation numbers are in and they’re lower than most economists anticipated, confirming inflation is currently not an issue, opening the way for the Reserve Bank to cut official interest rates for the first time in 30 months next week and offer home owners and business people some respite.
While most economists are now tipping a rate cut next Tuesday, the question now being asked is how many more cuts are ahead.
NAB economist Alan Oster is tipping a Melbourne Cup rate cut to lower official rates to 4.5 per cent, but he thinks at most there will be one more cut before rates start rising again in 2013.
Westpac’s Bill Evans is looking for more rate cuts, saying the trend to lower CPI numbers “supports our view that this will not be a one-off cut. We have held the view that a total of 100 basis points will eventually be shaved from the cash rate.”
Time will tell, and the European gloom as well as issues in the US may encourage more rate cuts, as Australian consumers stash their cash rather than spend in times of uncertainty.
Despite strong local fundamentals, our property markets are flat because of poor market confidence and while a drop in interest rates won’t be bad for property, I feel it will take more that one or two interest rate cuts to restore confidence in the average Australian home buyer. This means our property markets are likely to remain flat for some time yet as the world works it’s way through its various problems.
What effect do you think the interest rate cut will have on the market?
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