ANZ CEO: Australia is “different”

From the AFR:

The Reserve Bank of Australia should resist calls to cut official interest rates, according to ANZ Banking Group chief executive Mike Smith, who argues ­Australia can weather falling commodity prices and a global currency war.

In a position at odds with the forecasts of his own bank’s economists for two rate cuts over the next five months, Mr Smith said he was optimistic about Australia’s outlook – particularly with a falling dollar making exporters more competitive.

“If I was the central bank I would wait and see how this plays out because if the currency can take most of the shock, it’s a much better way to deal with it,” he said in remarks to be ­published by the bank on Wednesday. “And of course, it does leave you the option of [using] monetary policy later.”

…“I’m still not too worried by the Australian economy. There’s still a lack of confidence . . . people are looking around the rest of the world and saying ‘well what’s different here’. But it is different.”

Come now. Where’s the public relations filter? Australia is not “different”, it’s just one cycle behind the rest of developed world. It’s an interesting point, though. Would cutting rates boost or hurt confidence? Probably both.

The unprecedented nature of rate cuts at this stage of the cycle would probably entrench the view that Australia is not “different”. But it would also undoubtedly add some fuel to the only investment game in town in east coast house prices. That’s confidence of sorts and will boost consumption at the margin.

Given the falling dollar is, in part, a result of markets acceptance of further rate cuts (see major forecasters and bond pricing) not cutting will send it straight back up, so Mike Smith’s argument about letting the dollar do the stimulating doesn’t make much sense.

The regulators have made a big deal of their macroprudential changes and their design is supposed to prolong and not halt the housing construction cycle so we’re supposed to already have insurance against excessive imbalances forming in the financial system. Unless the regulators are lying or kidding themselves, they should now be able to cut to ensure the dollar keeps falling.

Or does Mike Smith know something about APRA efficacy that we don’t?

P.S. Here is Mr Smith starring in his own video:

Houses and Holes
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  1. “…..they should now be able to cut to ensure the dollar keeps falling…..”

    Why do people claim that the RBA is trying to manage the exchange rate with interest rates when it repeatedly denies that it has any intention of doing that?

    The RBA may flap its gums from time to time about the exchange rate not reflecting fundamentals yadda yadda but that is not the same as using interest rate policy to manipulate the exchange rate.

    If the RBA cuts rates again soon it will because they are concerned that the asset prices driving the Debt Machine are at risk – especially with the govt fixated about putting the Fiscal Debt machine back in the shed.

    With asset prices in a couple of states sluggish or at risk (hello Perth) once it is clear that Sydney and Melbourne are coming off the boil further cuts to the target rate will be on the menu.

    That and the terms of trade will help drive down the exchange rate.

    But lower target rates and a falling exchange rate will not make it easier for our banks to roll over their off shore residential lending related borrowings.

    The price of mortgages may not fall as much as the target rate.

    CAD countries have vulnerabilities which we are going to discover regardless of the LNP plan to cover up the cracks with an accelerated program of selling off the nation.

    • australia_is_different

      Is there a link which shows that Australian banks are using foreign funds to sell mortgages? It is mentioned a lot but I’ve never seen a source.

  2. bernard collins

    People change thier predictions all the time.
    Some like to dance on australias grave.
    As Peter Switzer said last night a cut would send out a very negative about the state of the nation .
    Last year i remember captain glen on interest rates stateing “its all about the high dollar”.
    Some are over the moon about the demise of the aussie buck.
    Some take pleasure when the aussie stockmarket gets smashed and the futures from wall st are negative .

    • Switzer might call it a negative message. I might call it the truth.

      Then again, perhaps I’m one of the people LOLing when the share market gets smashed & looking forward to dancing at the funeral of the Aus economic ‘miracle’.

      • +1
        I’ll be dancing if/when property is obliterated back to fair value (40-50% nominal). The sharemarket just isn’t as exciting as having my own home!

    • I take pleasure from some of these things because I feel that I have been a victim of the RBA’s monetary policy.

    • Some take pleasure when the aussie stockmarket gets smashed and the futures from wall st are negative .

      Meanwhile others take profits.

  3. of course it’s different here, it’s different everywhere

    the only bad thing about our economy is lack of confidence

  4. The video confirms it. Straya really is different! I worried for a while that only NZ was different. We’ll never have a housing bust either. So now we’re both the same by being different than the rest of the world.

  5. Maybe Mike just knows he will only be passing any cuts onto depositors anyway

    Those NIMs are already on shake ground and that next bonus isn’t going to print itself.

  6. mine-otour in a china shop

    Love the video – Mike Smith is a brave man to wear green superhero underpants in the cartoon.

    Most other international bankers wore brown superhero underpants at this stage of the cycle – Australian bankers really are different!

  7. At this stage I’m with Smith on this. Can see very little upside to cutting now. I must be missing something.

    • First sensible thing I recall ever hearing out of Mr Smith.

      Me too. Cutting interest rates should be a LAST resort.