The official interest rate in Australia came down a full 1 per cent yesterday, the third such drop in 3 months. Clearly the Reserve Bank recognises that these are tough economic times, and they’re trying to do all they can to keep Australia out of a recession.
Of course, none of this was anticipated by the people at ANZ. Back in May of this year, the ANZ Bank said that the official interest rate could be nudging 10 per cent in 2009.
“We expect the RBA to increase the cash rate by another 50 basis points over the second half of 2008. New information over the past two months points towards stronger growth and higher inflation outcomes over the year ahead.”
– ANZ co-heads of economics and interest rate research Warren Hogan and Sally Auld
Economists get it wrong. As various commenters at news.com.au have pointed out, throughout 2008 we have been told that petrol prices would hit $2.00 a litre by the end of the year (I filled up the tank yesterday for 94.5 cents per litre), and the Aussie dollar would be equal to the US dollar (it’s now back to about 64 US cents). Now interest rates are falling faster than ever, and they probably haven’t yet hit the bottom.
Real estate forecasters also get it wrong. Some, like Professor Steve Keen (click here to see Professor Steve Keen’s interview on The 7:30 Report), are forecasting a massive drop in property prices, perhaps up to 40 per cent. Regardless of how educated and well-informed these people might be, experts get it wrong.