Good ‘ol Dr Oliver wants a 50 bps cut, according to the SMH:
Interest rate futures currently point to an even-money bet that the RBA will match May’s cut and reduce its cash rate to 3.25 per cent – leaving it not far off the lows during the global financial crisis.
“It’s all adding up to the need for another aggressive move in rates,” said AMP chief economist Shane Oliver, who will tell his firms clients this afternoon that he tips a full half-point cut. “I think this is a time for aggressive moves to get the RBA ahead of all the worries.”
For now, about half of economists polled by Bloomberg expect the central bank to cut the cash rate by 25 basis points to 3.5 per cent. AMP’s Oliver may be the first to go public with his prediction that the cut will be twice that size.
The details of market pricing are wrong. So far as I can see, futures are indicating an 80% chance of a 25bps cut (in green):
50bps (pink) is up a lot today but still well below the same odds of two weeks ago. And another point is wrong too, MB was the first to go public with the possibility of a 50bps cut, weeks ago.
Still, is it a good idea? Well, first you have to ask the following questions.
- Does the economy need 50bps? Data says at least.
- Is the RBA behind the curve? Yes.
- Is there an inflation problem? No.
- Is the dollar falling fast enough to a) generate inflation – no, and b) to stimulate – no
- Would a 50bps cut spook the horses? Possibly.
- Are they already spooked? Yes.
- What’s the risk of not cutting 50? Recession.
- What’s the risk of cutting 50? Reignition of housing bubble – fat chance.
