Doubt grows over need for rate cuts

ONE of the nation’s biggest investors has questioned the logic of further interest-rate cuts, saying more easing by the Reserve Bank is unlikely to spur businesses to invest.

Australian Foundation Investment Company chief Mark Freeman said investors globally are in “uncharted territory” as low rates push share prices to record highs.

The comments came as the ASX 200 rose to a fresh alltime high of 7079.5 points yesterday, its fifth consecutive record-breaking session.

“The biggest challenge for investors is the level equity markets are trading at,” Mr Freeman said.

“It has been an incredible run and the push of money into the market is still happening.

“We are in a different world at the moment because of very, very low interest rates. The term uncharted territory is valid.”

AFIC is the nation’s biggest listed investment company, with an investment portfolio worth more than $8 billion.

Record low interest rates have prompted investors to pull funds from term deposits and invest in shares, upping their risk profile in the process.

Sky-high share prices and record company valuations did not mean the local bourse was headed for a fall in the shortterm, Mr Freeman said, saying low interest rates would provide a support.

“These things can go for a very long period of time,” he said of the local bourse’s stellar run.

Mr Freeman joined a growing list of investors and business figures to question whether there was any point to again cutting interest rates.

Many economists expect the RBA to deliver two more cuts by the middle of the year.

Future Fund chairman Peter Costello criticised the RBA’s most recent cut, while Bendigo and Adelaide Bank managing director Marnie Baker has said the cuts have spooked consumers.