For anyone stressed out at the impact of the Reserve Bank’s interest rate policy on their material life or their business, there are mounting stories that suggest talk of three interest rate rises this year should be erased from the mental hard disc.
Before 2011 kicked off and the rain came down creating the devastating floods across the country, the consensus of economists tipped two to three interest rate rises over the year.
Last year, I argued on my Sky News Business Channel program and especially in my Weekend Australian newspaper column that the fear of those pending rate rises were spooking consumers. And true to form retail had a shocker last year.
Retail woes
The latest reading showed that retail spending rose by just 0.3 per cent in November after the 0.8 per cent slump in October.
“Over the past year retail spending has risen by just 1.3 per cent – marking the second weakest reading in five years — surpassed only by the one per cent annualised growth rate in the year to May 2010,” said CommSec’s Craig James.
This comes as both the manufacturing and services sectors, according to special ‘performance measures’, are actually contracting, and they have been for some time!
Economists’ call
This year saw some economists back off their three rate rises in 2011 call as the country was drenched by the Queensland floods in particular. The consensus went to one to two rate rises.
Only last week, Westpac’s boss Gail Kelly told the parliamentary inquiry into banking that her chief economist had downgraded his rate rise call to one only for the year, which looks the most likely outcome. But wait, there’s a better call.
Surprising result
Adnan Kucukalic, a Credit Suisse research analyst, told the AFR last weekend that things are tighter than many think and that economic growth this year in Australia will be “underwhelming.”
This contrasts with the Reserve Bank’s view that has two years of growth over three per cent.
Kucukalic says if you add the high borrowing costs to tougher bank lending standards and then to the demand sapping impact of the high Aussie dollar, then monetary conditions are tighter than most think — especially the RBA!
Putting these together he arrives at a single number for a monetary conditions index and he comes up with a conclusion that could make a lot of long-suffering home loan customers’ ears prick up.
Kucukalic says his index says interest rates should be cut this year!
Even if he’s not totally right, I think there’s evidence that says forget three rate rises in 2011. By the way, the money market that bets on this sort of thing through futures products is also tipping no rate rise this year.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
(Source:Peter Switzer Switzer Broker Newsletter 28/1/2011)
