…More than a year ago, a visiting senior team from a major global investment bank was doing the rounds of Australia’s economic policy makers – including the Reserve Bank and Treasury, as well as Abbott’s office.
What struck the visitors was how openly hostile the PMO was about the Reserve Bank’s performance.
The office was particularly angry about the fact that the Australian dollar had rallied back to just shy of US94¢ from US86¢ in early 2014.
Only months earlier the Reserve Bank had embedded in its regular statements language about how interest rates were in for a “period of stability”.
…The stance made sense because of a very genuine concern that more interest rate cuts would further fuel property prices and drive up household debt.
That caution has since been borne out, with a chart published this week by the Reserve Bank showing household debt-to-GDP is around 180 per cent – a staggering level.
From the AFR’s Jacob Greber comes nice piece of RBA preening today:
So, Tony Abbott did get one thing right. The RBA had fucked up. Not just its communications, which regular readers will recall were abysmal, but in its bald-faced resistance to macroprudential policy which, had it been embraced earlier, would have both prevented the credit blowoff from happening at all and allowed it to lower the dollar fast by cutting rates. Worse, this came on the heals of a massive RBA misread of the durability of the commodities boom.
In short, Stevens covered one blunder with another and if I’d been PM I’d have put him on his bike too.
