Business News

No rate rise please

| More

by Peter Switzer

My old mate, Rory Robertson, the hotshot economist and interest rate expert for the millionaire’s factory — Macquarie Bank (or Group, if you want to be precise) — has tipped an interest rate rise from the Reserve Bank.

This comes as the latest ANZ job ads figures came in better than expected, which is just another sign that our economy is recovering nicely.

The total of jobs advertised rose 4.4 per cent in September and that followed a 4.1 per cent jump in August. And the latter rise was the first for 16 months!

However, despite this the ANZ economics team thinks unemployment will go from 5.8 per cent to 6.1 per cent on Thursday.

Now Rory is not alone, with Ross Gittins from Fairfax saying a rate rise is a chance tomorrow but if it does not happen then you can put your money on a rise on Cup Day next month.

The inside word?

It has been inferred by some that Gittins is briefed by the Reserve Bank, which I think is impossible. No one can be given a heads up on what the Reserve Bank is intending to do as it would be like inside trader information. It has to be that Ross simply has a good track record of reading the RBA. Well, I hope that’s the case.

Those expecting a rate rise soon argue the Reserve Bank wants to get away from emergency levels for the cash rate of three per cent as soon as possible. The experts have used history to say that we should expect a couple in a row when the rises start.

Personally, I think raising rates now is too early and will damage business confidence in particular and could delay their decisions to hire staff. I would like to see unemployment peak and start to fall and then the Big Bank can let loose with rate rises.

At least using this method, we would actually have an economy on a firmer footing of recovery that could more easily take the higher costs of funding that will come when interest rates rise.

Don't do it

Though I expect Wall Street to avoid a big sell off in October, what if shares nosedive again? A rate rise today could look like a really dumb move.

(By the way, here is a nice market fact, which market optimists will love: history shows that when Wall Street has a positive September then there is a 66.6 per cent chance of a positive October. The past September defied the bears and went up and the September quarter was the strongest quarter in a decade.)

The Reserve Bank should wait at least another month and consider the economic and market data, especially out of Wall Street.

Remember, job ads are up and positive — that’s great — but there are over 44.9 per cent fewer ads out there for workers than there were before the economic you know what hit the fan.

I have one thing to say to the Reserve Bank board: “Don’t do it!”

For advice you can trust, contact Switzer Financial Services.

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.

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, October 06, 2009