Interest rates to ‘ease’ by end of 2008

Interest rates could ease by the end of this year on the back of rapidly slowing consumer demand, according to Goldman Sachs JBWere Asset Management chief investment officer Andrew Cooke.

Speaking at the manager’s annual 2008 Market Outlook Briefing in Sydney yesterday, Cooke said he would “throw out the controversial point that rates may be easing as we get to the end of 2008”.

“Clearly, the RBA has signalled very strongly, and indeed again today, that further interest rate rises are likely and as we go through the remainder of the year.

“(However), consumer demand may slow too much and the banks may be on the easing cycle as other people are still going the other way. So things can change pretty quickly in the next 12 months.”

In terms of asset market fundamentals, Cooke said that “with the recent corrections, Australian equities have gone from being mildly expensive to cheap versus long-term averages”.

“That implicitly suggests we don’t believe the global issues will impact on Australia to the same degree that markets are pricing.

“If one looks at market actions since start of year,” he added, “international equities are down in line with emerging market equities, (which are) down in line with Australian equities.

“That suggests there’s a potential to rotate out of some international equities, where the issues are much more serious, and into domestic equities, where there’s elements of shelter that come from our exposure to the emerging markets.”