Tuesday, November 04, 2008

RBA backflip

In hindsight the RBA overreacted to inflation in making interest rate hikes up to March 5 this year when rates peaked at 7.25%. After being cut by 100 basis points last month they were cut by another 75 points today to be 5.25%. Global deflationary forces have removed the risk of inflation and the clear, substantial risk is a severe recession in Australia accompanied by our own mini debt crisis if house prices really crash.  Official interest rates are at their lowest level since December 2003 but still remain high relative to those abroad.

4 comments:

Slim said...

Isn't economics the science of knowing exactly why your last prediction was wrong? :-)

rabee said...

I don't know about Australia but I'm worried that China is heading for a recession (yes negative growth).

The problem is that China is still developing a market economy, so its crash could be fast.

The US, Japan, Europe and other mature market economies will probably rebound quick smart. Prices should simply adjust to reflect changes in demand. But China and Eastern Europe? Who knows how things work there?

Anonymous said...

Harry,

you have completely discounted the Lehman bros effect.

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