Why the RBA shouldn’t cut rates

Tim Hannon

Central banks want prices to rise consistently and with low volatility, normally in a range of 2 to 3% per annum. Prices growing at greater than 3% per annum apparently signal capacity constraints in an economy, so the central bank raises interest rates to crimp consumer spending and investment - giving the economy the chance to build extra industrial output. Conversely, price growth below 2% purportedly signals economic weakness, and by a central bank lowering interest rates it tries to encourage consumer and business spending to bolster economic growth. We do not think a further reduction in interest rates will change many of the underlying trends in CPI. We expect interest rate cuts may simply lead to higher real estate prices. This isn’t necessarily a positive for the economy, given record prices for these assets already in place. If there were going to be a positive transmission into the Australian economy from higher real estate prices, it would be working by now. Full report attached. Please visit (VIEW LINK)


Tim Hannon

Tim has 22 years’ experience in the investment and securities markets. Tim was a partner of Goldman Sachs JBWere and during his 15-year tenure at the firm had senior experience across all areas of equities investing.

Expertise

inflation monetary policy cpi deflation RBA, inflation data

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