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Question of when

Question of when

Peter Switzer
7 September 2009
One week into September — the scariest month of all on Wall Street — and no sell-offs, yet. That’s good news but we still have the rest of the month and that pesky October to deal with. And locally, we have another dilemma — will the Reserve Bank raise interest rates in October?

Frankly, I hope not with the G20 finance ministers and the IMF all singing the same song, which the Federal Opposition doesn’t want to hear and it’s called: “Don’t stop the stimulus!”

Emergency rates

In case you forgot, the stimulus plus China has helped us grow by 0.6 per cent in the June quarter. In fact, non-farm annualised economic growth is now at 3.1 per cent and that’s around our trend rate of growth.

That’s great news but it does make the case for the Reserve Bank to ease off on what it recently called the “emergency interest rates” levels.

However, the stimulus is not just handouts from heaven, sorry Kevin, they are also the cuts in interest rates.

All in the timing

The timing of the raising of interest rates will be important to the overall jobless rate and eventually how high interest rates go. I don’t want to sound to prophetic, but you could argue that a rise in time might not mean nine in double time! That is, nine quarter per cent rises which could take the cash rate from the current three per cent level to 5.25 per cent, which could push home loan interest rates over the seven per cent mark.

Now the seven per cent mark is the more common rate we all should be used to, but if the RBA plays its rate cards right we could take a long time to get to seven per cent plus home loan interest rates and that would be a good thing.

A lot of the media hype is implying we will see interest rates jump by two per cent really quickly but if the global recovery does not kick in until the second half of 2010, then I can’t see a case for rapid rate rises.

Big week

This week will be important in determining what the RBA might do.

We get job ads today, the NAB business survey on Tuesday, the Westpac consumer sentiment reading on Wednesday along with housing finance numbers and then the biggie on Thursday — unemployment.

This is not expected to be a bad number with the current jobless rate of 5.8 per cent tipped to not change much.

What could delay the Big Bank raising interest rates?

Well, try a bad unemployment number, which is not expected. Crook business and consumer confidence results, which again is not on economists’ radar screen.

A big sell off on Wall Street would make the Bank think twice but that’s not the kind of thing anyone in debt should pray for, lest they eventually find that they not only lose their house but also their job!

Outlook

Locally, economists think the rest of the year could have some negative readings and some suggest we could see economic growth turn slightly negative as the stimulus impacts wane.

This kind of outcome could make the RBA hold fire. No bold predictions from me, but as Kath from Kath and Kim might say: “I feel it in me waters” that we’ll see a rate rise before Christmas and if we do I hope it just might stop us from having to have too many more across 2010 and 2011.

For advice you can trust, contact Switzer Financial Services.












Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.



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