BEFORE we get carried away with the universal wave of euphoria that has greeted the first official interest rate cut in almost seven years, it is timely to ask if yesterday’s downward move of .25 per cent might not be too little and too late.

There was widespread speculation prior to yesterday’s announcement that the Reserve Bank may choose to send a very strong – and positive – message to consumers by lowering the rate by .5 per cent.

The market had already well and truly factored the .25 per cent cut that was actually delivered with the result it could actually be seen as the bank having a bet each way.

Our view is that the Reserve Bank has always been mistaken in using increased rate hikes to fight inflation caused by underlying resource price increases – particularly petrol – that are not influenced in any way by such a blunt instrument.

It has, by lowering rates so soon after back-to-back increases earlier this year, made this admission itself.

Why not then go the whole hog and deliver a bout of CPR to consumer confidence by announcing a .5 per cent cut?

With fuel prices siphoning money out of everybody’s pockets at an incredible rate of knots there was never any need to mug them with such Draconian rate rises as well.

It is consumer confidence – rather than the grossly overrated emotion of love – that makes the world go around.

Consumer confidence has been on the decline since the current Federal Government began talking the economy down big-time during the 2007 election.

It was interesting therefore to hear the Treasurer, Mr Swan, talking the economy up again recently.

He even went so far as to express the view it was in better shape than many people thought.

The Reserve Bank could have made the same point in a particularly memorable way by cutting rates by .5 per cent yesterday.

Still, there’s always next month ...