The Reserve Bank meets on Tuesday and it’s anyone’s guess as to whether the Reserve will cut rates or not. The experts are evenly divided on whether or not it will happen and the money markets are pricing in a 50 per cent chance of a rate cut.
Here is a summary of both sides:
Reasons why rates will remain steady
• A rate-cut could reignite a property market which is perceived to be overheating
• Already low rates have not really boosted the economy – so why should we expect a further cut to have a different impact?
• The feel-good impact of a new Prime Minister is already boosting business expansion plans
Reasons why rates will be cut
• This week’s inflation figures were at the lower level of what the RBA strives for
• The decision by the big banks to raise interest rates could force the economy to contract
• Unemployment levels remain unchanged
• The only thing that rate cuts seem to be stimulating is the property market (and associated sectors of the economy) – something is better than nothing
Tuesday’s decision is a close one. My gut tells me rates will be on hold – but I won’t bet my house on it. But I can see a cut coming by February 2016.