Rates are going lower. Not today but cuts are coming. Warwick Mckibbin has reversed course, detaching himself from a temporary bullhawkian alliance. From the AFR:
Former Reserve Bank of Australia board member Warwick McKibbin has scrapped his call for an official rate rise, saying the government’s rush to deliver a short-term surplus threatens to crunch the economy as prices for important exports tumble.
Amid fresh signs that consumers are clamping down hard on spending – as the boost from the governments $2 billion in cash handouts fades – Professor McKibbin said the likely need for future rate cuts had increased.
…Writing before Tuesday’s Reserve Bank of Australia board meeting – widely expected to result in an unchanged cash rate of 3.5 per cent for a third month – Professor McKibbin warned that policymakers could be forced to step in and prevent an economic slump caused by the falling terms of trade and a “severe fiscal contraction”.
And there it is. Welcome back Professor.
Interestingly, Professor McKibbin also cops an implicit serve from the unrepentant bullhawk, Chris Joye, who today argues inexplicably that “vested interests” drove the recent debate about RBA intervention in the dollar. It was Professor McKibbin that led this debate and he can be considered a singularly independent and well qualified voice. Sadly, the bullhawkian lord is continuing his doomed inflation crusade from last year:
Devaluation of the Australian dollar would also produce higher inflation in tradeable goods and services (the opposite of the recent tradeables deflation that has kept overall inflation low), which undermines all taxpayers’ real consumption wages.
Is inflation really what we’re worried about now? It’s loss of production that’s the issue of the future and where growth is going to come from as the mining boom declines and guv’ment seeks its surplus. That’s deflationary and the dollar needs to fall.
Markets are repricing as we speak. Here’s the Credit Suisse one year index which is now pricing 100 basis points of cuts:
And Bloomberg indexes are pricing the most likely path of the one percent in cuts coming in four straight meetings: Oct, Nov, Dec and Feb!
Just in time for the end of the mining boom.
P.S. I’ve adjusted this piece on the sage advice of Terry McFadgen, former RBNZ board member:
Forecasting rate movements is a mugs game.All that can sensibly be said right now is that future rate movements are highly uncertain because they are dependent on(amongst other things)-the Fed’s next step, the rate at which China slows or re-stimulates, the continuing commitment of the Gov.to its mad surplus promise and the speed at which tradeables inflation responds to a weakening dollar(if it continues to weaken in the face of probable Fed actions).Too many variables there I’m afraid.Eschew all forecasts. Put away the crystal balls.Be humble.
