Rates unchanged, in defiance of media forecasts

By Terry Ryder, 7th February 2012

The extraordinary ability of economists to collectively get in wrong most of the time has again been demonstrated, with the Reserve Bank deciding at its meeting today to keep interest rates on hold.

Most economists had bet the Reserve Bank would cut rates by 0.25 percentage points, apparently convinced that worries about the economic situation in Europe would be the key issue.

A survey of 18 economists by Dow Jones Newswires showed that 16 expected the RBA to lower its cash rate to 4 per cent.

Economists said that the RBA had room to cut rates largely because they remained high by world standards. The weak global economic backdrop, evidence of accelerating layoffs locally, and low inflation helped round out the justification for a cut.

However, rates will remain at 4.25% for at least another month. The RBA cut rates in both November and December and clearly feels that is enough for now, particularly with so much conflicting data around at the moment.

Retail sales have continued to be patchy but job advertisements in January showed a strong rise and real estate data continues to be more positive.

Headlines in the past week have included these, as media has indulged the chattering economists, despite their tendency to be off-target with their forecasts:--

Interest rate cut increasingly likely

Economic data points to interest rate cut

Interest rates poised to drop amid flat retail sales

RBA tipped to lower cash rate after data shows economy struggling

ENDS

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