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.
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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