Yes, unbelievably, as the RBA Board enters the cockpit of monetary policy today, this is the view confronting it through the windshield:
From the AFR this morning comes complete nonsense from the RBA’s shadow board of freshly plumed bullhawks:
A small but high-powered group of policy hawks has urged Reserve Bank of Australia governor Glenn Stevens to hold his nerve today and keep interest rates on hold until the fallout from the European debt crisis is clearer.
“They need to keep their powder dry because who knows what is going on?” former RBA board member Donald McGauchie said.
…members of the “shadow” central bank board, including former RBA board members Warwick McKibbin and Bob Gregory, want the cash rate left at 3.75 per cent…
…Saul Eslake, a member of the shadow board and Merrill Lynch Australia chief economist, said $2.5 billion in cash payments due this month from the government in compensation for the carbon tax was “stimulus enough”.
The RBA could also afford to wait at least another month, and, depending on the outcome of the Greek elections on June 17, make “contingency plans for an inter-meeting cut”, Mr Eslake said.
If you’ll pardon the expression, what a steaming pile of bullhawkian droppings from this newly formed flerd (flock + herd).
The carbon tax rebates are not stimulus. They are an offset to relative rising prices that are designed to push folks away from carbon-intensive consumption (I suspect Eslake has been misquoted on this). There is a world of difference between this and cash handouts that people are told to go out and spend.
On Greece, why on earth wait? If Greece stays in the Eurozone, it will have to endure some form of ongoing austerity, which is still killing the European economy. If it leaves, sure there’ll be a big shock, but it’s already happening via the accelerating crash in European growth. If it leaves, just cut again, even harder! As we all know, it takes 6 months for monetary policy to take effect.
Moreover, the problems of the world economy have little to do with Greece any more. This is now increasingly a crisis of stalling global growth. Spain, Italy and the core Eurozone countries are plunging towards recession. The US economy is sliding again and we are one bad housing report away from a triple dip crisis grabbing markets. China is clearly wrestling with a hard landing and we don’t yet know to what extent they will stimulate, even if the signs so far are that it won’t be a big bang. And as growth slides, outside of China, the only bullets the world has left are money printing. Fiscal responses are dead ducks.
But this context is lost on the flerd:
…HSBC Australia chief economist Paul Bloxham, another “shadow” board member, said the scope to cut official interest rates had narrowed with the dollar’s recent drop under US97¢.
Mr Bloxham said the fall was likely to put upward pressure on inflation, while most domestic indicators for the economy remained firm, including the 4.9 per cent jobless rate.
“The 50 basis point cut by the RBA last month has yet to feed through the economy and almost all of the currently available economic indicators pre-date the May cut,” he said.
Not all, no. What we have is showing some kind of freeze has grabbed a hold of households. Moreover, it started in April, when the banks showed a clear intention to do whatever they wanted to with mortgage rates. Bloxham is contending that the RBA has done enough at this point to support growth, which is very wrong in my view. The RBA is behind the curve again, another month only pushes it further behind. In aggregate, there is no inflation in the economy nor enough coming to worry about. The risks are all to the downside as the ABS unemployment figures catch up to the reality of a struggling labour market. And from the sublime, we get to the ridiculous:
Another shadow board member, University of NSW professor James Morley, said it was important that the RBA not be seen to be targeting house prices, which have fallen this year.
“The inflation-targeting mandate implies a need to focus on a broad basket of consumer goods, not on particular asset prices,” Mr Morley said.
Mother of God. What fern did this dinosaur leap from? We’ve been targeting asset prices since 2003. Badly, mind you. But we sure as hell should be targeting them now. Not to keep a lid on them, to prevent them falling apart.
The RBA should fly its policy straight through this flerd with a a giggle and insouciant cry of bullhawk strike! If the spray of feathers, beaks, guts and hooves clouds their vision a bit then cut 25bps. My preference is 50bps. Demand is under pressure on four fronts: Europe/stock market, China/economy and there are unprecedented questions over the traditional remedies of monetary loosening and fiscal stimulus.
Undoubtedly, in the month ahead, we are going to see some form of stimulus from China, a resolution to Greece’s electoral conundrum, probably a banking proto-Eurobond, and likely QE3. We should join them all with stimulus today. The more the better.
