Economics Vs. Politics on Rates

With debate in full swing over next weeks RBA interest rate decision, the consensus (if any) appears to be a 50/50 call with economists sitting firmly in the ‘No’ camp. Traditionally the board would look to act on substantive data (see May’s meeting after release of the March quarter inflation data), however, HIA figures due out tomorrow for new home sales from February could be the catalyst for change (and greater political influence to be exerted). In January, home sales fell by 7.3 per cent to the lowest reading in 11 years. There is renewed energy in the market but it does appear to be focussed on the existing homes segment. As we suggested in our earlier post today, a rate cut may well be ineffective on this sector with alternate means of market stimulus required at a Federal or State level.

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