by Peter Switzer

Is this just me, or are we copping a lot of baloney about interest rates from banking economists and/or the media? It seems that there are some with hidden agendas, or they are simply boofheads not knowing what damage they’re doing by constantly warning interest rates are to rise.

And it seems to me that either some people are a bit miffed that their warnings are not coming to fruition, underlining their questionable predictive powers, or as I have suggested, they are simply boofheads.

The negative headline

Oh yes, there can be another reason and it’s linked to the media’s need to attract eyes to websites and coins to newspapers – the curse of the populace’s need for a negative headline!

All of this analysis came to me after reading a newspaper article where the headline screamed: “Reserve warns on rates”. But this confused me because the previous afternoon I had read CommSec’s assessment of the minutes from the May Reserve Bank board meeting and their headline was: “RBA – no immediate need to raise rates”.

Forecast misses

And this followed the latest Australian Bureau of Statistics take on employment that surprised the expert economists who bravely try to forecast economics.

In April we lost by 22,100 jobs, which was the biggest slide in 22 months.

Economists were looking for an 18,000 gain and so that was a miss of 40,100 jobs. But it gets worse with full-time jobs disappearing at a monthly rate of 49,100.

This coincides with last week’s budget that revealed our economy is growing at only 2.25%, instead of the Treasury forecasted rate of 3.25%.

Who would be a forecaster? Or maybe the question is, are our forecasters in need of new predictive models? Or maybe they simply need to get out a bit and have a look at the real world.

Regular readers know I have doubted the strength of the Aussie economy for some time and that’s because I not only expose myself to the views of my economist buddies, I have a deep connection to the small business sector.

It’s not going gangbusters in small business land, I can assure you.

Conflicting views

Anyway back to the conflicting views on what the Reserve Bank is really saying.

Not wanting to turn this into ‘let’s burn journos and economists at the stake’, I won’t name names, but I will take some quotes to underline the contradictory interpretations of the RBA board’s minutes.

So the journo kicks off by warning: “Borrowers are likely to face higher interest rates in coming months, after the Reserve Bank confirmed it would use its key weapon to combat inflation from the resource boom. ”

Against this, this is what CommSec told us: “The latest Reserve Bank Board minutes indicate that members are not as hawkish as some analysts initially thought. While rate hikes are likely to take place over the next six months, there was nothing in the minutes to suggest the Reserve Bank was likely to be overly aggressive on interest rates in the near term”.

I don’t know about you, but as someone who has a mortgage, I prefer CommSec’s view. And as an economist myself and commentator who would like to see growth improve on the low 2.25 per cent rate, I think it’s important not to over-spook consumers and business.

Clearly, others don’t give a toss about the implications of their scaremongering.

But the journo was not alone – he had an accomplice who was at least a bit measured.

Quoting a banking economist he revealed that the person in question said:

“I think they've made it pretty clear that rates have to go higher and it's just a matter of timing. ”

Confidence not strong

What gets me is that there are people out there who influence opinion, and their preference for accentuating the negative is counterproductive.

Right now business and consumer confidence isn’t strong and heading up –

it’s the opposite. CommSec says loans for the construction of new dwellings – a key forward looking indicator for housing activity – fell by 10 per cent in the past three months and are now holding at the lowest levels in 27 months.

Tourism is in a slump, the latest reading on manufacturing shows the sector is contracting and the same goes for the services sector. And I would argue without China and mining, we would be in a recession if interest rates were at these current levels.

Wait-and-see game

To me and for anyone who understands how vulnerable the slow part of our two-speed economy is, we should be playing a wait-and-see game before we talk about interest rates rising.

By waiting a few months the RBA can look at how we are growing, creating jobs and breeding inflation. This I know isn’t a controversial viewpoint and it might sell fewer newspapers and attract less online surfers but it’s a more truthful assessment of reality.

When it comes to people in businesses and in debt, and the anxiety that predictions of future interest rates can create, I think truth or more accurate calls should be a high priority for journalists and economists.

Published: Monday, May 23, 2011