Tuesday, 22 January 2013

Interest rates. Will they move further down or not?

This is interesting.
There is a disagreement out there.
The Kouk thinks that the interest rate cutting cycle is over. ( You need to read his Business Spectator piece to get all his reasons.)
The main reason is that he believes the improvement in the world economy will improve the economy. There are others of course.

On the other hand Ricardian Ambivalence believes there could be more on the horizon. Although iron ore prices have improved other commodity prices haven't.

I am in the latter camp.

I will add a postscript following the CPI result. RA is expecting a 0.5% result on the underlying rate.  CBA is expecting a 0.7% rise.
If he is correct a cut maybe on the cards. If CBA is right then there is no rate cut.

More later

Ricardian ambivalence 1 The Kouk 0

Will there be another cut.
I agree with ricardianambivalence naturally.  He outlines everything I would say anyway.

The one thing I would say is with regard to the over-valued $A. Any sort of decent growth in Europe will see the much watched but vastly less understood deficit and debt ratios fall.

We might then see demand for our triple A rated bonds diminish somewhat.