Bloxo: RBA to cut in March

We never got our great denouement with the end of the great Bloxo rate hike campaign but the worm has most definitely turned:

* Today’s labour market numbers surprised on the downside with jobs falling by -12k and the unemployment rate climbing to a new high of 6.4% in January

* Last week’s RBA cut and official statements showed that the central bank has become more downbeat on the outlook for growth and sees little risk of rising inflation

* Given today’s labour market data and recent dovish RBA commentary we expect another 25bp cash rate cut in March


Following two stronger months of labour market data, today saw a downside surprise. Employment fell by -12k in January (market had -5k) and the unemployment rate jumped to a new cycle high of 6.4% (market had 6.2%).

Although other timely indicators of the labour market – such as job advertisements, job vacancies and business survey measures of hiring conditions – have painted a more positive picture of the labour market, the official data remain weak. Today’s sharp jump in the unemployment rate in January, following two months of declines, sees the unemployment rate return to an upward trend (Chart 1). Although employment growth has lifted in y-o-y terms and is now running at 1.6%, up from 0.9% six months ago, this is still below trend and has been insufficient to push the unemployment rate lower, given strong population growth and rising participation (Chart 2).

Last week saw the RBA cut its cash rate for the first time in 18 months, revise down its own growth forecasts and generally provide dovish commentary. The RBA’s own growth forecasts were revised down to 1.75-2.75% for 2015 (previously 2-3%). The RBA also provided explicit forecasts for the unemployment rate, showing their expectation for it to continue to climb until early 2016. With growth expected to remain below trend and the unemployment rate expected to trend higher, the RBA has little concern about inflation picking up. Although they do remain concerned about the pace of growth in housing prices, particularly in Sydney, it seems that the RBA is hoping that tighter prudential settings will deal with the risk of the market over-inflating.

Following last week’s cut, we shifted our view to expecting that the RBA would deliver another 25bp cut in coming months. History shows that the RBA rarely delivers just one rate cut. Given today’s weaker than expected employment data, we now expect that another 25bp cut is likely to arrive in March, taking the cash rate down to 2.00%.

Yep. Ready yourself, APRA. I recommend making some big noise about higher capital charges for the Mac Bank mortgage free radical in advance of the cut. You need a big scalp for some big press.

Houses and Holes


      • H’n’H,
        I think you should know by now that none of them have a clue… anywhere in the world.
        This is a Balance Sheet Depression, same as The Great Depression…. and the authorities are using exactly the same medicine of extremely low interest rates and QE ( money printing).

        Didn’t work 85 years ago… not working now.

        You picked a crazy profession…

      • It is just such a ridiculous joke.

        Had dinner with a couple of CBA mates.

        Apparently, interest only loans are now THE THING. Why would you pay principal? Rates at record lows. Negative gearing benefits that increase with tour mortgage.

        Peter Fraser says there is no such thing. BS!!! You just refinance every 5 years. Bingo! An effective line of credit.

        This is such a joke.

    • Even StevenMEMBER

      The RBAs actions are constrained at this point, as it has the bluntest of tools. One interest rate simply cannot cater for both hot and cold parts of the economy.

      APRA has numerous tools at its disposal, but its objective is not one of financial stability as I understand it, but rather prudential regulation. It seeks to ensure that loans are made on reasonable terms which will not endanger the institution or depositors.

      I like to think of them as macro and micro regulators, respectively. They should operate most effectively if they work closely together.

      It is a concern of mine that all may look ‘ok’ at the micro level in terms of lending practices, but the aggregate of all those risks at the macro level is massively elevated prices and social inequity.

      Things *might* look ok at the micro level if first home buyers are using gifts (or guarantees) of mum and dad. Or if investors (I’m refraining from using the term ‘specufestors’ though am sorely tempted) are already sitting on significant equity. I recall some analysis from CBA a couple of years back suggesting that although there is a lot of mortgage debt, it’s held by wealthier/ high income households – presumably those who can better withstand a property downturn. Sounds a bit too good to be true to me, but there might be a bit of that to it.

      Irrespective, I do hope RBA and APRA are engaging in some quality one on one time. I fear our 30-year uninterrupted period of economic growth is coming to an end.

  1. Macroprudential nothing but “PR tool” used by central banks to justify their Ponzi schemes to keep stock market and asset prices high. I.e. yes interest rates are 0% and we are printing money but we have Macroprudential tools to stop asset bubble and stock bubbles.

    What a joke!

    • +1

      “Why didn’t you reign in the property bubble Glenn?”

      “It wasn’t me, it was that one-armed man APRA!”

  2. mine-otour in a china shop

    Another rate cut and APRA will do what?

    In the past their principles-based approach has led to such heavy handed supervisionary tactics such as: discussion papers, guidelines, new prudential standards closer liaison with other regulators, scrutiny of boards, increasing site visits and assessing entity risk appetite.

    Expect more of the same. Banks are to be trusted and left to do whatever they wish with the occasional light tap on the wrist until they eventually destroy themselves and the economy.

    Of course the light touch previous regulation has left us in this mess and I think APRA people are too wedded to their principles based approach to change course rapidly.

    We need to introduce a more radical supervisionary action course, with rates approaching 1% and with investors (and lenders) lapping up risk, which all of us depositors and taxpayers will share later.

  3. If Bloxo had skerrick of decency he’d ‘fess up and say I got it wrong. Yes I’m paid a 7 figure sum to get things right, but I’ve been wrong for three years now.

    He won’t of course, just like The Kouk he’ll pretend his long record of poor forecasts never happened.

  4. Interest rates go up and they go down. What’s the big deal. People tend to be drama queens.

    They need to stimulate the construction/building sector because its a huge sector of employment and productivity.

    Where else are all the jobs going to be created in our economy?

    • “What’s the big deal?”—-Amaz-O

      Aug 2008 Cash Rate 7.25%
      Feb 2015 Cash Rate 2.25%

      If you are retired and you are shit-scared to put your life
      savings in the bubble sharemarket, bubble bond market or bubble housing market, you rely on bank interest.
      Pretty good guide for this is the RBA Cash Rate, which in 6.5 years has gone down 69% (above).

      The only people in that time to have a bigger cut in income are the unemployed.
      I guess from your reaction, you must be unemployed.

    • 95% of investor loan approvals go toward existing housing. This is something the RBA seemingly doesn’t understand.

  5. So will the AUD drop faster than Sydney house prices rise?

    House prices: to infinity and beyond! AUD: to infinitesimal and beyond!

    Will there be any extra sources of amusement when AU interest rates drop below US interest rates?

    As for macroprudential, I am one of little faith. I’ll believe it when I see it.