This week is set to be a big one for interest rate worriers, with the RBA to meet tomorrow as question marks are raised about the slowdown of the economy. The consensus view is that we should see cuts by September but there are economists who argue no change will come this year. I think these people are wrong.
Right now, the Reserve Bank looks set to make no change this week, which makes perfect sense as we don’t know how the economy is going under the pressure of 13 rate rises and the squeeze effects of inflation.
In contrast, Judo Bank’s chief economist Warren Hogan has a view that will spook those with home loans.
“I’m on rate hike alert,” he told the AFR. “It’s not my base case, but I think there’s more chance that the RBA tightens in the next three or four months than they ease.”
So, let’s look at the reasons why the RBA should cut:
On the other hand, inflation remains over 3%. The actual number is 3.2% on the last monthly CPI reading. House prices continue to rise but that’s more a supply of housing problem rather than buyers ignoring the RBA’s rate rises.
This week, we get an important raft of economic data, which could have a big bearing on what the RBA does with rates. Tomorrow brings the latest rates decision and I think there’ll be no change. Then on Thursday, we see the March Purchasing Managers Index numbers and, more importantly, we get the February jobs report. The CBA tips 45,000 jobs were created.
If there’s a lot more jobs, the RBA could think about another rate rise. If the number is less, then the big bank’s board will be thinking about when rate cuts should come.
As someone who actually talks to a lot of small businesses, my anecdotal readings on the economy tell me that this economy of ours is slowing and rate cuts will be needed this year.