Sunshine Coast builders have been buoyed by predictions that interest rates could drop to their lowest levels since the aftermath of the 2001 terror attacks.
One Sydney academic is even forecasting an unprecedented zero interest rate by 2010 on the premise that debt-laden consumers will close their wallets and threaten to push the economy into a deep economic contraction.
Macquarie Group interest rate strategist Rory Robertson said the Reserve Bank of Australia (RBA) would cut the cash rate, now at 6% to 4.25% over the next year as global financial market turmoil put the economy under pressure.
Debt futures markets are expecting two bigger than usual interest rate cuts by Christmas.
They expect the RBA to cut interest rates by 75 basis points in November and follow up with another three-quarter of a percentage point move in December.
Such cuts would take the cash rate to 5.25% in November and 4.5% by Christmas, a level not seen since mid 2002.
Master Builders Sunshine Coast regional manager Stephen Robinson said significant rate cuts would be welcome by Coast builders who were beginning to feel the pinch of a slowdown in the past three months.
He said a 0.75% cut next month would provide a stimulus on top of the increase in the first home buyers grant to $21,000.
Master Builders will hold a breakfast meeting this morning at Maroochydore where members will be given an update on the economy.
Mr Robinson said there had been a dip in building inquiries on the Coast which would translate to a slowdown next year.
“Most of the experienced builders have factored in a bit of a downturn… they did that about six months ago.’’
“They are pretty well okay (with work) until March to June but their forward bookings are a little light on.’’
University of Western Sydney associate professor of economics and finance Steve Keen is radically bullish on interest rates, predicting a 2% cash rate by the end of 2009, dropping to 0% in 2010.
Dr Keen said the RBA would become more concerned about high household debt levels than inflation, as deep rate cuts in 2009 failed to stimulate the economy.
“They (the RBA) can cut the pain but they can’t boost the economy.”
Earlier this month, the RBA cut interest rates by 100 basis points for the first time since May 1992.
The RBA cut rates by 1% on five occasions during 1991 and 1992.
