Cash rate heading for 52-year low, says Stephen Koukoulas: Tweet of the day

The benchmark RBA cash rate will be at its lowest point since 1960 should the cash rate fall to 2.75% by March 2013, as is being priced by futures markets, Business Spectator columnist and economist Stephen Koukoulas has tweeted today.

Koukoulas, who heads up consultancy Market Economics and is a former economic adviser to the Gillard government, is tipping the cash rate to be cut by 25 basis points on Melbourne Cup Day next month and then another rate cut in the first quarter of 2013.

The RBA has only been publishing an official cash rate since August 1990 and a cash rate range since January 1990.

Prior to 1990 the Reserve Bank did not publish an official cash rate setting, so cash rate measures prior to this date are proxies of the current measure.

Historical proxy data going back to June 1959 shows the cash rate fell to its previous lowest point of 2.89% in January 1960.

“The Reserve Bank previously used other measures of the short-term interest rates as its tool of monetary policy,” explains the RBA.

“However, prior to 1990 monetary policy was not targeting inflation as it does now. In that way, the rates before 1990 do not reflect the same focus of policy.”