Business Spectator commentators Alan Kohler and “Mad” Adam Carr put the boot into the RBA today for mulling a rate cut. From “Mad“:
Monetary policy is on a road to nowhere, policymakers apparently in a blind panic — desperately hoping that something, anything positive, will happen. It is that panic that permeates through the economy and weighs on business and consumer confidence — each and every time the RBA cuts rates.
Noting this, and if the Prime Minister is sincere in his view, then Abbott must change this tack immediately. If he and the rest of cabinet want to quick-start the process of reform and boost Australia’s prospects, then they must put the kybosh on any further monetary easing.
That’s especially the case when the currency is already down at US77c, when a huge stimulus is coming through on crude and given the rebound in housing. Not to mention the general lift in economic activity, including the recent surge in jobs growth.
Not much point analysing that. If you don’t see the commodities bust, the capex cliff, the income shock, global deflation, currency wars, a swiftly slowing China, a stalling US bounce and European stagnation then what’s the point in having a discussion? Nobody saw it coming!
But at least Adam is consistent. He’s wanted rate hikes for four years now to stamp out the big inflation surge. Alan Kohler is all over the shop:
If the Reserve Bank cuts interest rates today, as a majority of economists and market forecasters are forecasting, it would be purely symbolic, an almost entirely meaningless act. Its only impact would likely be negative, not positive.
The key problem with the Australian economy that is not external, and thus outside the RBA’s influence, is weak business investment…If anything, a rate cut today would make it worse. CEOs would look at it and think they were right to be worried, and cancel any spending plans they might have had.
There is certainly no need to cut rates to join in the currency wars and get the dollar down. Australia is already on the winning side of the currency wars: the exchange rate is already well in decline and will keep going down.
…So what, exactly, is the problem that a rate cut would solve, apart from re-igniting the housing market and further impoverishing self-funded retirees? It’s hard to think of one, apart from business confidence and the possibility of another crisis in Europe.
Taking these points one-by-one:
- to assume that rate cuts will not be positive for sentiment also assumes that collapsing commodity prices aren’t negative for sentiment. A little support for the economy as our super-cycle comes apart seems reasonable;
- rate cuts are going to kill and revive business confidence? Don’t follow on that one;
- we’re winning the currency wars? That’s news. I thought authorities had been trying and failing to get the dollar down for two years. The major reason the dollar started sliding is rate cuts, and the recent breakdown is attached directly to rising perceptions of more following lousy Q3 data;
In recent weeks Kohler has also declared that house prices are about to take off and to correct as deflation spreads, yet somehow the chaos is confined to politics?
Maybe the reason confidence is weak is because trusted commentators are making absolutely no sense.
