More Interest Rate Cuts

I believe that we can expect a further 50 to 75bps of rate cuts I have found the RBA comments quite encouraging. In recognising that the non-mining sector of the economy will remain below trend and forecasting that inflation will be contained there appears to be ample scope for further rate cuts should that non-mining sector continue to underperform. However, the growth forecasts for the second half of 2011 are extremely upbeat and I would be surprised that, if those forecasts were achieved, there would be a need to cut rates.

I am of the view that the growth momentum will be considerably weaker than the Banks currently expect. That will be due to softer consumer spending, weaker business investment outside mining and ongoing difficulties in the housing market. All of those components argue the case for the RBA to reduce rates further.



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