The Running Commentary

The couch economist speaks again……


Well today sees the start of the MPC meeting to determine among other things the cut in the Repo rate. (It does feel nice to say with certainty that it will be meeting to discuss a cut)

The commentators are split with many suggesting that the cut will be “at least” 50 basis points, but some suggesting 100 basis points is on the cards.

So here goes my view on the outcome. A simple test of the business mood this past January and the “pipeline” for February shows that the economy is cooling at a rapid rate. We need the MPC to follow a more aggressive stance in terms of lowering the Repo rate.

The next two or three meetings must see an aggressive reduction in the rate. My view is that that will likely cut the rate by 100 basis points this time around, because this still gives them the opportunity to be conservative at the next meeting (although my view on the next 2 or 3 meetings remains unchanged).

If they fail to be aggressive in this cut they are not going to start the economy back on the road to recovery, but instead see a very real threat that they actually putting the economy into a recessionary state.

Remember it will take almost 10 months for the effects of this decision to finally filter through the economic indicators, so this decision is crucial.

As always I want to leave you with the thought that you need to use the money that comes available at this point to lessen your debt burden. Leave your bond repayment unchanged this should decrease your term by 24 months or maybe more!

Economyinterest ratesMPC

Mike • February 4, 2009

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