No about Larry Summers. He gets debt deflation, from MarketWatch: A central tenet of Federal Reserve policy — that a central bank should remain independent from the national government — is outdated, in light of the lack of demand suffocating the economy, said former Treasury Secretary Larry Summers on Thursday. Central bank independence “comes from
Australian interest rates are set by the Reserve Bank of Australia, an independent body established in 1959. It is guided by an inflation targeting regime that seeks price stability in the 2-3% consumer price index band. The RBA originally also governed prudential policy but following several large scandals and bankruptcies in the late 1990s that role was separated into a discrete entity titled the Australian Prudential Regulation Authority.
The RBA is widely well-regarded despite a recent history of buried corruption allegations and a board of business rent seekers that, in more ethical nations, would not have their hands anywhere near monetary policy levers.
In 1990, Australian interest rates were set at 17.5%. But during the Great Moderation, interest rates consistently fell alongside inflation and oscillated in a band between 1.5% and 7.5%.
Owing to an endowment of resources that proved very attractive to China during the Global Financial Crisis, Australian interest rates did not fall to the lows experienced in other developed markets. Indeed, Australia was the first developed market to raise interest after the crisis though it has subsequently had to lower them again as the commodity boom subsided.
During the 2000s, Australian interest rates began to be influenced by external economic pressures much more than previously. This process was driven by the huge offshore borrowing of Australia’s big four banks in wholesale markets. As their offshore liabilities ballooned, the banks were increasingly exposed to the vicissitudes of far flung markets and investors. This reached a head in the global financial crisis of 2008 when banks faced much higher demands from offshore investors for better risk-adjusted returns, forcing them to break with the Australian cash rate in setting local interest rates.
Ever since, Australian bank have regularly adjusted lending and deposit interest rates unilaterally and independently around the cash rate set by the RBA. These interest rates moves were a constant source of political friction as politicians sought to protect the Australian property bubble.
In 2015, Australian interest rate policy was forced to return to a defacto shared responsibility arrangement between the RBA and APRA. With the lowest interest rates in fifty years, the Australian property bubble inflated to new dimensions even as a global yield trade drove up the value of the Australian dollar, threatening economic growth. Eventually the solution found was to apply macroprudential policy to some mortgage lending so that interest rates could be lowered to take pressure off the currency.
MacroBusiness was the most accurate forecaster on Australia interest rates in the market from 2011 forward. It predicted both the turn in rates downwards in 2011 and has had the most dovish outlook ever since. It also lead the debate around, and implementation of, macroprudential tools in 2014. MacroBusiness covers all apposite data and wider analysis of these issues daily.
From Bill Evans at Westpac: The Bank releases these Statements on a quarterly basis so they are very important from the perspective of tracking the policy deliberations. In the Preview which I released recently I noted that the Governor, in his recent Statement following the November board meeting, signalled that there would be few changes
From Deutsche: – The prospect of a cooling in the Chinese property market and a slowing in Chinese growth would suggest that Australian Governments should probably not assume that any lift in budget revenues on account of higher commodity prices is likely to be permanent. – Indeed with wages growth in Australia (and globally for
From Westpac’s Bill Evans: As expected, the Reserve Bank Board decided to leave the cash rate unchanged at 1.5%. It is significant that the Governor chose to retain the same language as used in October for the concluding paragraph which signals any bias. The neutral bias which we saw in October has been retained in
The RBA has held rates again, surprising nobody but the Kouk. The statement: At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent. The global economy is continuing to grow, at a lower than average pace. Labour market conditions in the advanced economies have improved over the past
From Credit Suisse: It is well documented that the RBA is closely monitoring core inflation, as well as the health of housing and labour markets. But Governor Lowe has also revealed that the Bank cut rates earlier in the year because it could see credit growth slowing. In this context, a further material slowing in
From the Shadow: There is little economic news, not even OPEC’s decision to cut oil output, to justify a change in the current cash rate. Unemployment fell yet again, albeit slightly, and consumer price inflation, at 1.0% year-on-year, remains well below the RBA’s 2-3% target band. The CAMA RBA Shadow Board clearly believes that the
Finally the time has come when I can call someone else a doomsayer. One of the more amusing things about be trailed by a bunch of MSM copycats is watching them attempt to be contrarian. After all, a blog by definition can’t be mainstream. That’s like driving a car with no wheels, drinking a beer with no fizz or
I had a fascinating conversation with a real estate agent today. In it he described the collapse of housing turnover since the introduction of macroprudential tightening, that MB has labelled “shrinkflation”: He said that his data was indicating that both Sydney and Melbourne Spring season turnover was running at -40% versus last year. He described building
From Domainfax: Michael Blythe, CBA: Our view before today’s numbers was that an underlying CPI rise of 0.3 per cent or less in Q3 would leave inflation trapped at the very low rates that contributed to the May and August rate cuts. As such we continue to expect the RBA to cut the cash rate to 1.25 per
From APRA’s new residential mortgage lending reporting requirements for authorised deposit-taking institutions today: ARF 320.8 was introduced in 2008 and has not been updated since then. There is now a significant gap in APRA’s ability to monitor the credit risk and lending practices of ADIs. Only 31 of the 109 locally incorporated ADIs are required to submit ARF 320.8. Many
From the AFR: Bendigo and Adelaide Bank, the nation’s fifth largest retail lender, is the latest major lender to crack down on property buyers with tougher valuation policies, bigger deposits and creating “high risk” locations. The overhaul follows the bank reviewing more than 1400 postcodes around the nation to cap its exposure to market hotspots, particularly in Melbourne,
From Westpac this time: • Westpac’s forecast for the headline CPI is 0.9%qtr which lifts the annual pace to 1.5%yr from 1.0%yr. • September is traditionally a stronger quarter (mostly due to the annual price resetting for administrated prices) with the ABS seasonal factor worth 0.3ppts. This results in the seasonally adjusted CPI rising a
From Macquarie: RBA Governor Philip Lowe’s first speech as Governor has reinforced themes around monetary policy we have been highlighting. In our view, the speech adds a dovish increment to the tilt for monetary policy in Australia. We think that the framework outlined by Lowe for how the RBA Board is considering policy,
From Westpac: The minutes of the monetary policy meeting of the Reserve Bank Board for October, which mark the first meeting of the new Governor Lowe, provide significant insight into the Board’s current deliberations. The minutes are quite honest that there is a high degree of uncertainty in a number of areas. In particular the
Weeo, weeoo, weeoo: What a funny little business the sudden interest in “tracker home loans” is – an apparent desire to have a home loan that immediately follows Reserve Bank cash rate movements just when there’s a very good chance the next RBA move will be up. …It’s an oddity that some members of the
Many things that occur in society defy rational or logical explanation. Society does not behave like the universe where science continues to unravel the workings through theory, experiment and testing. The universe is rationally predictable through the laws of science. Society or people are not, as collectives of humans influence their own outcome and that
From Janet Yellen Friday night: Extreme economic events have often challenged existing views of how the economy works and exposed shortcomings in the collective knowledge of economists. To give two well-known examples, both the Great Depression and the stagflation of the 1970s motivated new ways of thinking about economic phenomena. More recently, the financial crisis
Cross-posted from The Conversation: Australian Treasurer Scott Morrison recently suggested the Reserve Bank of Australia (RBA) avoid cutting interest rates below the current 1.5%. The Turnbull government’s “fiscal consolidation”, he said, was more important for stimulating the economy. This is big talk, and to be anything close to credible it needs to be backed up