Why the Reserve Bank of Australia should not cut interest rates now.

It won’t happen, but I would like to see the Reserve Bank leave interest rates as they are. Cutting them only makes people lose more confidence in the economy and what we need now is a boost to confidence. That is why leaving interest rates as they are would create a positive effect on our psyches.

All this talk of gloom and doom may make Rudd and Swan feel better because they can blame someone else for the economic woes we are experiencing. And to be honest, it is not the fault of this government. But in the end what will save the economy is not a stimulus package which so far has done little.

In my opinion, our economic woes are greatly influenced by our perception of how well we are doing.

We should not ignore the impact of negative messages on our psyche.

First, we were told that China’s economy will protect us, so we will be fine. Now we are told that even China is experiencing less growth and that we cannot rely on it. So when we hear that twenty million Chinese are losing their jobs we cannot remain upbeat.

It’s only logical that people will be afraid to employ new staff if the prognosis is so gloomy. It’s also logical that people are reluctant about spending more when their incomes are at risk. Tell us that we do not need a drop in interest rates and that will give everyone a boost.

Even if the interest rates were lowered by Two Hundred points it would not help matters and, in fact, it would aggravate the problem.


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