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Mr Interest Rates

Another bad day at the office for Australian home loan borrowers with inflation shooting to 4.3 per cent and economists telling us to brace for a May interest rate hike.
But don’t believe them. They could be right but I think they’re crazy going for a May call.
And they are not speaking as one. Macquarie Bank’s interest rate strategist, Rory Robertson, thinks no change in May and June.
Probably a decade ago I gave Robertson the tag Mr Interest Rates, which he never did cartwheels about, after pulling off a couple of good calls that others missed.
Interest rate calls are a big thing in the life of a banking economist.
Craig James of CommSec thinks we will see a rate rise in May citing that all annual underlying inflation measures are over 4 per cent.
“The Reserve Bank will probably have no alternative but to lift rates again in May to combat further inflationary expectations,” he warned.
However Robertson thinks this inflation, which covers the three months to the end of March, explains why the Reserve Bank hiked in November, February and March. In fact, the last two rises came with the other banks raising interest rates again to cover their new high cost of borrowing due to the credit crunch.
Plenty of people know how many envelopes they have received from their lenders recently informing them their home loan interest rate have risen.
“I think the RBA will remain on hold for the foreseeable future,” said Robertson. “Yes, the chance of further tightening in the second half of the year has increased but another hike in May or June remains unlikely.”
You have to hope Robertson is right because there is an underestimation of how parts of the economy are hurting at the moment.
Not one business confidence survey has been positive in months and the same goes for consumer confidence readings.
Business costs and especially petrol costs are soaring which causes inflation but also hits profits and this will end in job cuts.
Even credit card growth is now the slowest on record. And the latest Dun & Bradstreet report said the slowdown we’re already in will extend into 2009.
The same report tipped unemployment would rise this year to 4.5 per cent and then to 4.9 per cent in 2009. The jobless rate is now 4.1 per cent.
It’s time for great Summit-like ideas, such as let’s cut the GST down to 8 per cent for a time to send costs and inflation down.

We’re told higher coal and iron ore prices could push up Government revenue by $16 billion. Let’s use it wisely. 

Published on: Tuesday, March 24, 2009

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