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Lower rates not on the horizon

A FEW economists have started talking about the possibility of the RBA actually easing rates at its next meeting.

There are three conditions that could lead the RBA to lower rates:

l The movement upwards in joblessness. This would appear on the basis of the October figures of job creation as being satisfied already;

l The US Federal Reserve starts to ease its rates. This does not appear to be the case just at the moment. However it must be said this will only work if the US and Australian economies are moving in synch. The Fed seems to be more reliant on oil prices and the natural slowing down in the economy removing the need for them to do much with rates; and

l The Reserve Bank states that its outlook for inflation has “improved”.

The current state of these three conditions suggests there is no likelihood of the RBA lowering rates at present. The RBA still seems biased to the prospect of tightening rather than easing.

The speech made by Ian MacFarlane to CEDA did not soften that view at all.

The best guess being offered by economists is that the RBA will stay on hold in the first quarter of the year 2001 and impose the first easing around mid-2001.

So, for those punting on a rate decline, I suspect that the news is less promising.

There doesn’t seem to be a lot on the horizon that would support the need for an easing. The need for a rise seems also to be remote.

Stay as you are appears the favoured option.

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