Optimistic outlook for local credit market

Current concerns about the state of the United States economy, gridlock in credit markets and recent commentary from the Reserve Bank ofAustralia suggest that liquidity in Australian markets will soon improve, according to Goldman Sachs JBWere Asset Management chief investment officer Andrew Cooke.

Cooke pointed out that although global credit market concerns are exceptionally high at present, core inflation has crossed the RBA’s three per cent comfort zone on three other occasions in the past 15 years.

He drew parallels with episodes in 1995 and 2000 when the RBA faced similar issues when deciding whether or not to raise interest rates.

He said 1995 rises were linked to accelerating local growth, an economy running close to capacity and a strengthening global economy.

“[T]he RBA was willing to act on the presumption of higher inflation and acted rapidly and early to increase the tightness in the economy,” he said.

“In the year 2000 it was driven by similar factors — strong domestic demand and employment growth — however, the RBA was willing to take into account weaker offshore markets akin to the current credit crisis in deciding to ease early in 2001.

“Using these case studies it can be argued that the RBA runs a pragmatic, global view in making interest rate settings. With current concerns over the state of the US economy, gridlock in credit markets and taking on board recent commentary from the Reserve Bank, our best guess today would be that we are in the final stages of this tightening cycle.”