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Ask the economists: good odds on an interest rate cut

The Melbourne Cup is renowned as a day for a casual bet, but you could be forgiven for thinking there isn’t anything to gamble in today’s Reserve Bank decision —  it has been called by the media well before the race has been run.

Herald Sun business analyst Terry McCrann backed that rates would fall a week before the decision — the decision was as certain as “Black Caviar odds”. The Australian’s John Durie wasn’t hedging his bets either, saying that with the RBA not needing to worry about inflation it has “no reason not to cut rates”. News Limited has now turned its attention to whether the banks will pass on the rate cut, regardless of the fact that the decision is yet to be made.

Fairfax still appears indecisive. Business Day journalist Chris Zappone argues there is a cause for a cut in interest rates, yet the headline “RBA may defy nation once again on Cup day” seems to indicate a more conservative approach. Malcolm Maiden erred on the side of caution, arguing a couple of weeks ago that the rate cut may not be as clear cut as anticipated.

With the decision close to the wire, Crikey put it to the experts to see if the odds are any clearer …

Associate Professor Steve Keen, University of Western Sydney:

I think there will be a cut. They expected inflation to rise and duh it’s falling. Their model tells them inflation is going to rise. It goes against what their model told them.

Adam Carr, senior economist, ICAP:

There is no case for a cut. The global economy is growing at such a trailing pace and we have got so many questions over Europe that it only makes sense for them to hold off.

Chris Caton, chief economist, BT Financial:

We think the RBA will cut interest rate. The economy could use some help and the inflation figures are a good indicator of this. The recent inflation news gives the Reserve Bank the ability to cut rate. They should be concerned about both our local and global economies.

Dr Frank Gelber, chief economist, BIS Shrapnel:

I would say it’s around 50/50. Actually more like 60/40 — being more likely that they won’t cut. It can go either way. Although there is no immediate crisis here either way. We talk as if the Australian economy is in some doom and gloom disaster, but it’s not. Look overseas for God’s sakes.

Michael Knox, chief economist and director of strategy, ABN AMRO Morgans:

Our model tells us about a rate cut, however whenever we talk to the RBA they talk about this big mining boom in 2012. So we think the decision is 50/50.

Bill Evans, chief economist, Westpac:

I think the Reserve Bank will cut rates. There are a number of weaknesses in the economy that would warrant a cut. For instance: a rising unemployment rate, an ongoing weakness in consumer spending and also a weakness in housing market. All of these factors contribute to a case to cut rates.

2
  • 1
    AR
    Posted Tuesday, 1 November 2011 at 7:57 pm | Permalink

    As usual, half doz. economists, a dozen differing opinions. Why are they still being fed?|
    Prof. Keen excepted.

  • 2
    Meski
    Posted Wednesday, 2 November 2011 at 9:26 am | Permalink

    3 out of 6 got a yes no question right. 2 didn’t answer, and 1 was wrong. Anyone for just tossing a coin?

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