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Economists spray in every direction: cuts, hikes and holds

Christopher Joye
12 August 2011

Well, they are certainly living up to the indecisive stereotype. From nobody forecasting rate cuts as far as the eye could see, to one loner in Westpac's Bill Evans, who immediately after the Q2 CPI came in for huge criticism (for forecasting four rate cuts with core inflation 40 per cent above target), to now four big banks – Deutsche, Goldman, Westpac, and Macquarie – all projecting that we will have interest rates come down in the next year or so. How quickly economists change their minds. New information,

I guess. I would personally be surprised to see the RBA cut before the Q3 CPI even if the unemployment rate continues edging up. They would not raise rates in the face of rising inflation, so it is hard to see how you cut rates without evidence of declining inflation (given the RBA itself acknowledges its inflation forecasts are not especially good).

And unemployment, which has been flat for six months, has not been a great guide for inflation other than suggesting that there is a threshold – around five per cent – below which Australian central bankers dare not now venture!

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