Egg all round

Yes, and some of it on this blog’s face. Though it did at least take the Joye/McCrann drivel to task.

Both the RBA and the banks have suddenly backed off on rate rises (at least for mortgages).

This blog can’t figure out if this is a wildly bullish or bearish signal. Probably neither. For clues, lets turn to the RBA Statement. Here is the crunch paragraph:

Asset values are not moving notably in either direction, and overall credit growth is quite subdued at this stage, notwithstanding evidence of some greater willingness to lend. Inflation has moderated from the excessive pace of 2008. The effects of the rise in tobacco taxes aside, CPI inflation has been running at around 2¾ per cent over the past year. That looks likely to continue in the near term.

The reference to asset prices is most interesting to this blog. The phrasing suggests that the RBA is prepared to factor into its decisions movements either way in asset values.

The orthodoxy of the past two decades has been to disregard asset prices and clean up after any bubble has burst. The RBA diverged from this course once in 2003 but has always maintained the rhetoric that bubbles are impossible to diagnose. This statement, however, rather sounds like it is prepared to support asset prices, as well as prevent them from rising overly.

Those who campaigned for the inclusion of asset values in monetary policy calculus may get more than they bargained for.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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  1. Cat's out of the bag. What other assets are they going to take in to account now I wonder? Why not bring level of stock market in to their determination? Or basket of commodities? Or gold? It can't be that the bureaucrats are increasingly arbitrary when determining the "correct" level of credit for the Australian economy, it must just be that we haven't been properly understanding the rules. Silly old us.

  2. I've held the view for most of the year that the RBA wants people to act as if rates are going up, without actually putting them up.

    More here

    Also, I've held the opinion that all is not as rosy as the RBA makes out, and we might see some surprisingly poor GDP numbers and low inflation figures for the Sept qtr, which would mean that rates would be on hold till early next year.

    If the housing market really takes a dive by then, there is a chance the next interest rate move by the RBA will be down.