CBA has some interesting research out today using the Mankiw Rule (a version of the Talyor Rule) to judge whether rates have bottomed and any upward forward curve:
Our analysis shows that based on our unemployment and CPI forecasts, the cash rate rising to around 4% over the next 18 months is consistent with the observed relationship between headline CPI, unemployment and the cash rate over the last five years. Lower (higher) inflation and higher (lower) unemployment rate estimates decrease (increase) the cash rate estimate for Mankiw.
Of course, this does not by itself mean that the RBA will raise rates over the next year. The RBA takes many other things into account when setting interest rates. More recently, the high Aussie dollar has become a consideration when setting monetary policy. At the moment, we think the RBA is unlikely to raise rates in 2013. As the graph shows, we think that the cash rate is likely to remain at 3% over the year. But this is interesting food for thought. And it’s worth remembering that the RBA was the first major central bank to lift rates in 2009 from “emergency lows” once it became clear that those low rates were no longer required.
Interesting enough. I’ll simply add that various forms of the Taylor Rule have been suggesting for two years that the US should hike rates.
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.
