RBA should cut rates tomorrow to get the economy going

Some experts are saying that inflation is not an issue at present, meaning that rates can stay lower for longer. The financial markets are saying there is a 36% chance of a rate cut in February. This could mean we sit on the 3% cash rate for some time. There are some who believe we can go lower and now is the time to do so.

Interest rates have more room to move, and we can get the economy going sooner rather than later with a rate cut early in the year.

Seeing that the December interest rate cut had little impact that was hoped for by the RBA and industry alike, a February or March cut of 0.25 percentage points is in my view required to generate the desired impact.

Cut the rate now by 0.25 percentage points to  keep the momentum required to stimulate activity to stabilise the economy.

Since 1990, when the cash rate was just 3% and the average standard variable mortgage had a rate of 5.8%, I believe there is plenty of room to move in terms of interest yet and that the economy is fairly stable overall, with reasonably low unemployment, a sturdy mineral sector and strong neighbouring economies such as China.

I think that a little slowing in retail spending does not necessarily spell gloom. However, a 0.25-percentage-point cut now would have had more of a result that the RBA is looking for. I see it as possible that we could be seeing an interest rate as low as 2.5% by the end of the year.

 Robert Projeski is the founder and managing director of Australian Mortgage Options, winner of over 12 industry awards. He is considered a leading property finance expert in Australia.