Tuesday, November 04, 2008
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.