IT'S six weeks to Christmas and I hear you say, "Where did the year go?"
Many of us who are a bit older are looking forward to an overseas holiday at Christmas with a bundle of strong Aussie dollars. I hear the snow bunnies in the eastern suburbs are keen on the snowfields of Japan and, increasingly, China.
In Japan, they are celebrating the centenary of the introduction of skiing by an Austrian army major: the aptly named Theodor von Lerch.
Just a hop across the Sea of Japan (also known as the East Sea) lies China, our other great trading partner, where many now believe the first people took to the slopes 5000 years before the Scandinavians. It's around here, on the ski fields along the legendary silk road in the prefecture of Altai, that Genghis Khan might have passed on his way to world domination.
Skiing would have been pretty tough in those days, without diesel-powered ski lifts. The trip downhill would probably have been about as quick as today quicker with Genghis behind you, but the way back to the top would have been an all-day slog.
It is a bit like the way we respond to the Reserve Bank's decisions on interest rates. After the last interest rate rise in November last year, we saw all our retail clients and the economy generally head downhill pretty fast.
And now with the Melbourne Cup day interest rate cut, it's back to the slopes, sturdy stocks in hand, as the long haul up the mountain starts again. As far as we can see, there's been almost no movement in the economy. As one of our clients said, we've seen a cautious store-on-store improvement in sales compared with a reasonably strong sales week in the previous year.
On the other hand, for the great many of us who are responsible for the record level of bank savings, an interest rate cut means a little less cash growth. So, sadly, this move is more likely to have a negative effect in the short term, although the hope is it will turn positive in the future, particularly if it is followed up with further rate cuts.
There is an argument that the lag between interest rate cuts and their effect on retail spending is about 18 months. I hope this time frame can be shortened because there is no reason to hold our economy back. It would make a lot of sense for us to fully understand and accept that we have a once-in-a-century boom.
By any standard, we have a very strong economy. The fact is while we have been included in the G20, we come in at number seven, just inside the G8.
Instead of snow skiing, why not stay at home this summer? Enjoy our great country and support the local economy.
Frequently Asked Questions about this Article…
What did the Melbourne Cup day interest rate cut mean for everyday investors and the economy?
The article describes the cut as a boost to sentiment — markets were “back to the slopes” after a period of slowdown following last year’s rate rises. It notes there’s been almost no immediate movement in the economy, and the cut may be negative for savers in the short term but could become positive over time, especially if it’s followed by further rate cuts.
How do interest rate cuts affect bank savings and cash income for everyday savers?
According to the article, a rate cut generally means less cash growth for people holding record levels of bank savings. That makes the move more likely to have a negative short-term effect on savers’ interest income, even if the hope is for longer‑term benefits later.
How long does it typically take for interest rate cuts to boost retail spending?
The article cites an argument that there is about an 18‑month lag between interest rate cuts and their full effect on retail spending. The author expresses a wish that this timeframe could be shortened so the economy can benefit sooner.
Is Australia’s economy still considered strong despite recent rate changes?
Yes. The piece describes Australia as having a very strong economy — a “once‑in‑a‑century boom” — and notes modest, cautious improvements in retail sales compared with the prior year, even though overall movement has been limited.
Should everyday investors favour local spending or overseas travel when the Aussie dollar is strong?
The article points out that a strong Australian dollar makes overseas travel more attractive (for example, to Japan and China), but it also encourages staying at home to enjoy and support the local economy — a suggestion aimed at helping domestic businesses.
What impact do interest rate rises and cuts have on stocks and market sentiment?
The author likens rate moves to ski slopes: the last rate rise sent retail clients and the economy downhill quickly, while the recent cut has lifted sentiment and encouraged investors to hold ‘sturdy stocks’ as the recovery begins. In short, rate cuts can help improve market sentiment, even if the economic pickup may be gradual.
Will further rate cuts help turn short‑term negatives into positives for investors?
The article suggests that further rate cuts would increase the chance that the initial short‑term negative effects (especially for savers) turn positive over time. The author hopes additional cuts will follow to strengthen retail spending and the broader economy.
How should everyday investors interpret mixed signals—strong economy but cautious retail sales?
The article recommends a balanced view: Australia’s economy is strong overall, yet retail sales improvements are cautious and gradual. For investors, that implies staying informed, focusing on quality (the article’s ‘sturdy stocks’ metaphor), and remembering that policy effects can take time to filter through the economy.
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