January OCR Review preview: How low can you go

There is a complete consensus that the Reserve Bank will cut the official cash rate.  However, the size of the cut is still uncertain.

Mearly a fortnight ago, safe money was on a 50bp cut with a large number of commentators suggesting 75bp.  To be honest, after coming out of December MPS it felt like another 75 in January was pretty likely.  Of course, since then world economic growth forecasts have collapsed, and domestic economic indicators have deteriorated – leading analysts to push for a 100+bp cut.

It is a tough call in such a fluid environment, but I’d be of the view that the Bank won’t go past 100.  Why?  Well commodity prices have steadied since December, credit markets have started to thaw, and a bunch of essential data points still haven’t been released – namely the December quarter employment figures.  If those figures are bad they can just cut 100 again in March – and they have a set of forecasts (from the MPS) to justify what they are doing.

Still – I have been consistently surprised by how much the Bank has been willing to cut the OCR 🙂 .  We will see tomorrow.

6 replies
  1. robin
    robin says:

    100 basis points. I could be wrong, but I don’t think so. Too much imported inflation risk, and there are more opportunities for similar cuts over the coming months. December was 150 basis points, so my guess is throttle back for this OCR *press conference* (wonder why?) and more later.

  2. robin
    robin says:

    Does anybody have a good time-machine engineer? I went one universe too far. I wouldn’t complain if the universe dial is just soldered in one place (as long as it’s this universe).

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