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No rate rise today

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by Peter Switzer

Despite what some ‘experts’ say, the Reserve Bank will not raise interest rates today. Good sense demands it but if stupidity happens to reign supreme today, I will be flabbergasted!

Here’s why in a big nutshell:

China is slowing down, though not to anything worth worrying about but it will cool down a red-hot commodities market.
The US is slowing down and is growing around two per cent and some worry about a recession, though I don’t. Macquarie doesn’t either and they see a stronger second half ahead but they’re guessing.
The Aussie economy contracted by 1.2 per cent in the March quarter and most economic data since March has been weak.
Yesterday we learnt job ads fell – no, nosedived – 6.5 per cent in May after falling in April, which was the first back-to-back drop in job ads in two years!
The TD Securities inflation gauge rose by 0.2 per cent in May after a 0.3 per cent jump in April and underlying inflation was unchanged at a low 2.4 per cent for the 12 months to May.
The world economy is also waiting with anxiety on Greek debt problems and the general state of debt in the EU.

Against this, the Reserve Bank worries the business investment linked to mining will cause inflation in the future but if some of the big negatives mentioned above become big crises, firms will cutback their investment plans.

The most telling quote I have seen came from the AFR over the weekend.

“If you look at the world, eastern Australia is in deep recession, in my view, as is New Zealand,” said Michael Byrne, the CEO of Linfox. “If we didn’t have mining, Australia would be like Portugal and maybe Greece and Ireland.”

Byrne’s position running a company like Linfox, which deals with so many businesses just cannot be ignored, especially by the Reserve Bank’s board.

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.

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Published on: Tuesday, June 07, 2011

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