Business News

Interest rates to fall?

| More

by Peter Switzer

I know you often hear me rabbiting on about the Reserve Bank and interest rate rises but I’m not the only one!

Sure what follows is less aggressive than the barbs I throw at the RBA but given the conclusion by the smart guys and girls at Morgan Stanley Smith Barney, it effectively says the Big Bank has gone too hard, too fast, too early.

In a brief for private clients, the US-owned investment bank says looking at what is happening to economic data and the high levels of interest rates for personal loans and small business loans the next rate move might be down!

That’s right, you hear it all the time and you read it — the media talks about rate rises but there are smart people not ruling out a fall.

Let’s be clear on this, the Morgan Stanley mob don’t argue this is their central belief but they consider it a real risk. And why not? Loans for consumers and small businesses are near the 2008 peaks and that should build a case for the Big Bank to play a wait-and-see game before loading us up with more slugs to our hip pockets.

Against this, Chris Richardson from Access Economics, who was on my show last night, thinks the combined power of the global recovery and demand for our resources from the likes of China will stimulate massive business investment, which will breed inflation in our tight labour market.

He thinks rates could go one per cent higher over the next year or two.

The majority of economists are more in Richardson’s camp but it could be that the worries about tomorrow are taking too much precedence over the ignored concerns out there right now.

The best strategy for the Reserve Bank is to hold fire until the local economic signs about the here and now are a little more positive. Let’s hope the leopards at the RBA can change their spots.

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.

Watch more from Peter on SWITZER TV.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Tuesday, February 15, 2011