So say
Mark Bouris who argues that consumers were psyched out with interest rate hikes
Surveys carried out by Westpac and the Melbourne Institute in February, May and August concluded that the average Australian expected two to three rate hikes in the year ahead. In the most recent survey, nearly one-third of all respondents thought that they would get hit with a remarkable four or more rate increases. It was no surprise to us, therefore, that the “future family finances” component of the consumer confidence data was near its 1991 lows.
The change was seen by
some as being too small
I can’t see the reason why you would cut interest rates by 25 basis points – I don’t believe in 25 point cuts. I think that’s a silly situation we got into with making such small adjustments…And I don’t think the international situation is as bad as everyone thinks it is, but 25 basis points is not a response to that. If you really thought it was bad, you wouldn’t be doing 25, you’d be doing 50 or 75...
Former RBA board member and eminent global economist Adrian Pagan
Chris Joye agrees with Bouris and
argues that the signal has important psychological implications
The average Australian family expected at least two to three rate hikes over 2011-12, and a big chunk of the community – around 25-30 per cent – were budgeting on four hikes or more.
The RBA’s about-face is going to have a tremendous impact on these expectations, which will swing from hikes, to stable rates or cuts. That is, the expectational effect of the RBA’s decision is more like two to three rate cuts. This will be especially powerful in interest rate sensitive sectors of the economy, such as housing.
Bouris points to other benefits, such as a less powerful $A helping the export and manufacturing sectors, and notes that a softening in commodities is a good, not bad event for Australia.
..the RBA has finally received formal confirmation that Australia does not have an inflation problem with the third quarter core CPI printing at an incredibly low 0.3 per cent.
..as a result, increasingly no need for the RBA to run restrictive policy.
