An Economist Agrees: Low Interest Rates are Here to Stay

It appears the Reserve Bank of Australia (RBA) likes the game of interest rate limbo it’s playing.

The June minutes revealed that the central bank is likely to keep interest rates low.

The RBA noted in the minutes:

‘…low interest rates were working to support demand, although it was difficult to judge the extent to which this would offset the expected substantial decline in mining investment and the effect of planned fiscal consolidation. Those uncertainties were likely to take some time to resolve.’

In other words, the RBA is telling you that unless all the economic numbers they love so much return to mining-boom levels, they’ll keep on fiddling with interest rates.

However, the cut in interest rates has been felt in the Aussie property sector.

Broking and research firm Morgan Stanley recently released a report suggesting that the RBA need to cut interest rates further, as without the cuts ‘the current housing cycle is in danger of gradually fading.’

Or as The Age bluntly put it:

‘…galloping house prices will soon run out of puff unless the Reserve Bank cuts rates again this cycle.’

That ‘cycle’ the Morgan Stanley report is talking about is the massive 15.2% growth in Aussie House prices since the last RBA cut in November 2011.

They’re playing similar monetary games over at the US Federal Reserve Bank.

Without a housing market to fiddle with (the Fed did that at the turn of the century, and look how that turned out), they’re focusing all their efforts on ‘fixing’ unemployment.

The central bankers confirmed this week their steady-as-she-goes interest rate policy is here to stay.

Read the rest of this article at Money Morning