By Jill Fraser for Lending Central

Economists are split on whether the RBA will raise rates again in December. AMP Capital Investors’ chief economist, Shane Oliver told Lending Central that it’s a close call, largely based on economic data which is due to be released over the next few weeks.

(ABS Labour Force figures, business consumer confidence data, employment data, housing finance figures are all coming out this week.)

Risks to inflation and the danger of generating other imbalances in the economy as a consequence of leaving interest rates at low levels are likely to continue to push the cash rate up.

Oliver notes “while the Reserve Bank’s Statement on Monetary Policy revised up its GDP forecast for 2010 to 3.25% from 2.25% and its inflation forecast for 2010 to 2.25% from 2%, this had already been pretty well flagged and so is no surprise.

He says, more importantly, the RBA has indicated that, with spare capacity being less than earlier thought and growth on it way back to trend, further interest rate increases are likely on the way. However, it is continuing to indicate that the process of raising interest rates will be gradual.
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By Jill Fraser for Lending Central

Risks to inflation and the danger of generating other imbalances in the economy as a result of leaving interest rates at very low levels are likely to push the cash rate up by 0.5% tomorrow says AMP Capital Investors’ chief economist, Shane Oliver.

“The minutes from the Reserve Bank’s October board meeting noted that although there are still downside risks to the economy it would possibly be imprudent to continue leaving interest rates at very low levels.

“As it’s doubtful that this month’s 0.25% interest rate hike has done much to move interest rates from “possibly imprudent” levels the clear implication is that barring an adverse turn in the global or Australian economies, more interest rate hikes are on the way,” Oliver told Lending Central.

“If you leave rates at this level you could end up eventually fostering a housing boom.”

He tips that tomorrow’s predicted rise will be it for this year.
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Precise economist forecasts need to be treated with a grain of salt and widespread support for a particular investment doesn’t always indicate a sure thing, an investment strategist warns.

AMP Capital Investors head of investment strategy Dr Shane Oliver said the most important thing investors need to be aware of is that crowd support for a particular investment doesn’t always translate as a winning decision.

“People tend to get comfort out of what they’re friends are doing, or what’s popular, or by media messages,” Dr Oliver said.

“So they tend to have that crowd support and the trouble is … you find out you’re getting in at the top and it’s often the time you should be getting out, not getting in.
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By Jill Fraser for Lending Central

“The improvement in economic indicators is consistent with an economic recovery by year end,” says AMP Capital Investors’ chief economist, Shane Oliver.

Oliver’s expectations are:

• While tight credit markets and ongoing deleveraging will most likely result in a slow recovery initially (say around 2% growth next year), the severity of the global recession and the amount of stimulus means a V-shaped recovery (with 5% or so growth next year) cannot be ruled out.
• After strong gains, shares are at risk of a correction and increased volatility in the months ahead as investors start to fret about the strength of the recovery. However, we expect the broad trend to remain up.

Over the last two months fears of a continuing collapse in global economic activity, leading to a re-run of the Great Depression, have been largely unwound and Oliver says the focus has now turned to the timing of the economic recovery and how strong it will be.

Morgan Stanley economist, Gerard Minack agrees with the recovery story (the macro team at Morgan Stanley expects a return to growth over the coming year) but cautions against misguided optimism.
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By Jill Fraser for Lending Central

The US Government’s plan to buy up to $US1 trillion worth of toxic loans from banks that have been clogging up the financial system, has been given the tick by Reserve Bank chief, Glenn Stevens.

Stevens believes that the scheme has “a good chance of succeeding”.

AMP Capital Investors’ Head of Investment Strategy and Chief Economist, Shane Oliver has fallen in behind Stevens stating: “The move to ‘quantitative easing‘ and US efforts to remove toxic debt from banks add to confidence of a global economic recovery from later this year and through 2010″.
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Before unveiling a record nation-building and jobs plan stimulus package totaling $42 billion the Prime Minister, Kevin Rudd stated “Australia is now in the midst of a national economic emergency”.

Minutes later the Reserve Bank announced it was slashing rates by 100 basis points, which sees the cash rate hit 3.25%, its lowest level in 45 years.

Claiming that Australia is already in recession, AMP Capital Investors’ chief economist and head of investment strategy, Shane Oliver discusses the pluses and minuses of government intervention and predicts that house prices will keep falling.
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The Reserve Bank of Australia (RBA) is universally tipped to slash the official interest rate next week to 1960s levels as it continues to try to mitigate the impact of worsening global economic conditions.

All 17 economists surveyed by AAP expected the central bank to slash the cash rate next Tuesday to stimulate a domestic economy facing its first recession in 18 years.

Nine economists, a majority, expect the cash interest rate to be cut by 100 basis points, following the RBA’s February 3 board meeting, which would take the cash rate to a 45-year low of 3.25 per cent - its lowest since 1964 when regulators set it at 3.18 per cent.
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The biggest quarterly fall in inflation for more than a decade opens the way for another big interest rate cut to help kick-start the struggling economy, economists say.

Headline inflation, as measured by the consumer price index (CPI), fell 0.3 per cent in the December quarter, the Australian Bureau of Statistics said on Wednesday.

This was the biggest quarterly fall since the September quarter of 1997, and followed the previous quarter’s 1.2 per cent rise.
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Australia could face a rough ride over the next few months after the financial meltdown in the US, with local banks less likely to pass on in full any cuts to official interest rates and those nearing retirement age facing a devaluation of their nest eggs.

The local share market closed 4.3 per cent lower today, after falling to its worst level in almost three years and losing about $55 billion in value, as investors fled most sectors.

“For investors generally I think it is going to remain a fairly rough ride for some time to come,” AMP Capital Investors chief economist Shane Oliver said.
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As the US Congress readies itself for several days of heated debate over the Government’s proposed $US700 billion bailout of financial institutions, which would raise the national debt ceiling to $US11.3 trillion, the world financial markets play a waiting game.

AMP Capital Investors’ chief economist and head of investment strategy, Shane Oliver says he agrees with Federal Treasurer, Wayne Swan that the Australian economy is better placed than most to withstand the global financial turmoil.
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