Hard to fault Bass on this--I've raised many of the same points myself:
Two weeks ago I suggested the case for a Reserve Bank interest rate cut at the February policy meeting was not strong given easing tensions in the global economy. And I questioned the near certain conviction maintained by financial markets – and most economists – that the RBA would simply cut rates again because of “ongoing fears about Europe”.
Two weeks on and my view has not changed. If anything, it has only hardened. Not only are European financial markets seemingly pulling back from the precipice, but economic conditions in still the world’s largest economy – the United States – have gone from strength to strength. And growth in the world’s second-largest economy – China – is not bad either.
That means if the RBA does cut interest rates tomorrow, it’s likely because of domestic rather than international factors – such as labour market weakness, Australian dollar strength and the squeeze on bank margins. But these factors still don’t seem strong enough to justify lowering rates for the third meeting in a row...
All up, this month’s decision on interest rates appears no easier than that back in December. Unlike in December, however, my sense is the RBA should and will likely wait a bit longer in lowering rates to better assess the impact of the rate cuts to date, and save ammunition should the global economy turn truly nasty later. It should not cut rates merely to help local banks painlessly retain their cosy profit margins.
