The interest rate cup
by Peter Switzer
It was always going to be a big day for anyone worried about interest rate rises and now that the latest inflation data has been delivered, the best bet for the Cup next week will be to put your money on 0.25 per cent interest rate rise before the Cup and Bart Cummings for the big race an hour later!
No 0.05 per cent rise ahead
My favorite rate tipster, Rory Robertson from Macquarie has done the form on the inflation data and has given us the good oil. He has ruled out the old favourite for the Reserve Bank stakes — a 0.5 per cent hike — after running his eye over the RBA’s best measure of trend inflation — the trimmed mean CPI — printed on expectations at up 0.8 per cent in the third quarter, and to be up by 3.2 per cent over the past year.
Over the past 15 months of the GFC, this has trended down from 4.7 per cent to now be at 3.2 per cent.
He’s so confident about his tip that he reckons he would be gobsmacked if his mail is not right and fails to salute the judge next Tuesday.
The relentless bookie
But wait, there’s more.
He also tips additional 0.25 per cent rises in December and February, taking the cash rate to four per cent.
And get this: he also warns that if we have a big Christmas, retail and economic recovery-wise, the February hike could be 0.5 per cent!
The Reserve Bank is looming as the relentless bookie who seems hell bent to take us punters to the cleaners.
Ok, even if we accept that the Reserve Bank expert watchers are right, and even if we understand that the Bank has to start raising rates to ensure the stimulation does not create big inflation rates which leads to bigger interest rates, I repeat my warning to the Reserve Bank that inside this economy are real people — consumers, homebuyers, property investors and small business owners.
The NAB boss Cameron Clyne was not over-the-top and upbeat about the Aussie economy with the bank’s bottom line hit by a $2.3 billion rise in its bad debt charges to $3.8 billion.
On the same day, along came the inflation rise of one per cent in the September quarter, but this was not caused by over-confident consumers splurging on plasma TVs.
It came more from state governments trying to cover up their incompetence by raising prices for the services we buy from them.
Utility charges rose by a record 10.2 per cent in the September quarter and 13.4 per cent over the year – the biggest increase in 26 years.
CommSec says if housing and financial services are excluded, the CPI rose by just 0.4 per cent in the quarter. It said arguably these two areas are little-affected by Reserve Bank rate decisions.
Meanwhile, the more important underlying measures of inflation continue to ease with the softer economy.
What we need
I have no problem seeing interest rates rise, but there’s no reason for a 0.5 per cent rise, which has been predicted in some quarters. That could really shock consumers and small business owners.
We need employers to want to think about hiring again. We need Aussies to start going out to restaurants to give young people job opportunities. If the Big Bank wants to go back to normal interest rates, it has to ensure that we all feel normal again and 0.5 per cent rate rises, as well as raising rates too fast, are not the ways to do it.
As a country we have luckily dodged a recession bullet, but I hope the Reserve Bank does not play with interest rate dynamite and blow us all up!
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: Thursday, October 29, 2009blog comments powered by Disqus