Very mixed benefits !

The Reserve banks decision to shave a further twenty-five points off the cash rate - bringing it to 3.25% - is hailed by some economists as " just in time " to save the battling retail industry.    This is now the fifth such easement in the past twelve months, and the benefits may have been overstated.

It certainly means that those people who have a mortgage will be required to make smaller monthly payments to service that debt, but there seems to be an assumption that families will use those savings to go on a spending spree - and that will restore the retail industry to profitability.     The more likely outcome is that many people will continue to pay the same amount off their mortgage in an attempt to see it reduce faster. The future still looks bleak and most people are in saving mode.   There may be a little relief for the retail industry, but those expecting a bonanza will be disappointed.

On the other side of the coin there will be disappointment from the legions of self funded retirees and those who get a part pension because of their investments.   The GFC hollowed out the hedge funds and investment industry servicing those with a superannuation lump sum.   The only safe and certain place for that money is an interest bearing term deposit - but now that return is to take another nose dive.   As these term deposits mature, reinvestment will be at a lower rate of interest and so those retirees counting on returns for their living  will certainly not be going on spending sprees.

There also seems to be an expectation that a lowering of interest rates will see industry seeking loans to expand - and therefore ease the unemployment situation.   At best, this will likely be very selective.  There may be a revival in the housing sector as home builders seek to cash in on the grant preference for new constructions, but the high Australian dollar shows no signs of easing and that makes anything manufactured here uncompetitive as an export.

It is also worth noting that the car industry is now virtually offering interest free loans to move stock.  The money market is predicting another interest rate cut before Christmas and that raises the question of what safety level exists to regulate the mixed interests of the economy.   The fact that just four commercial banks rule the banking industry here means that their attitude to lending will have the biggest impact on which way our economy moves.

The one thing that is absolutely certain - is that our economy is subjected to the whims and pressures that ordinary citizens make in conducting their finances.   No matter how rosy or how pessimistic the gurus of finance see it - what actually happens in the market place will have a lot to do with how ordinary men and women digest this interest rate news - and react !

Interest rates can be a double edged sword.   The Japanese interest rate edged close to zero in recent times - and delivered a stagnant economy that is still struggling.    For us mere mortals, it would seem to be good advice to be very careful about what we wish for !