WEEKEND ECONOMIST: European stimulus jolt

The current cash rate setting is mildly stimulatory, but given the underwhelming impact of cuts on consumer sentiment thus far, and the events unfolding in Europe, more than a total of 100bps in this easing cycle might be needed.

Market pricing would indicate that this easing cycle will be 200 basis points. Back in July last year when we first forecast that the next cycle in rates would be down we were mindful that previous easing cycles had gone further: 2008-09, 425bps; 2001, 200bps; 1996-97, 250bps. However we figured that the starting point for rates in this cycle was 4.75 per cent compared to much higher levels in the past – 7.25 per cent (2008), 6.25 per cent (2001) and 7.5 per cent (1996).

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