From the SMH:
Morgan Stanley strategist Daniel Blake, who predicts two more cuts in March and April before rates settle at 1.75 per cent, said any boost to household confidence from lower rates will be marginal at best.
“It will be stimulatory on the surface but the Reserve Bank needs to contain the housing market’s response. Lower rates also represents a headwind to savers in the economy. The other factor is that [lower rates] are pushing an asset allocation decision into perceived higher yield investments, such as blue chip fully franked equities,” he said.
…BetaShares market analyst David Bassanese, who is the latest to call rates at 1.5 per cent by the end of this year, believes the economy is likely to remain sluggish, forcing the RBA to keep cutting rates to spur growth.
He added that at a 1.5 per cent official cash rate we could see a surge in the share market as desperate investors chase yield.
“The risk of a share market bubble is now as large if not greater than that of a housing bubble” said Bassanese, noting that the price-to-earnings (PE ratio) value of the local market is now at 15.5 times, looking more expensive than the average of about 14 times.
I agree that the rate cuts will have a diminishing impact upon housing though how swift the decline will depend upon the size of APRA cojones. The recent cut was a jumper cable to the groin for anyone of the view that rate cuts have lost their power over specufestors.
Cuts will still be stimulatory in other ways. Lock in the share market bubble, which will bring its own “wealth effect”. Then there is the lower dollar (when it comes) which will eventually boost demand for exporters and import-competers.
I would add that there’ll be more cash for borrowing households but you’ll all shout me down in defense of savers!
