Warwick McKibbin appears at the AFR today to address yesterday’s rate cut:
There are two major considerations facing the RBA in its deliberation over interest rates. These are expected conditions in the global economy and in the Australian economy over the next several years.
The international economy is fragile…The decline in commodity prices has significantly reduced Australia’s national income but so far without the major economic dislocation that many pessimists predicted. Melbourne house prices rose 2.7 per cent in January which suggests that the historically low interest rates are putting upper pressure on asset prices. The February cut in interest rates will accentuate this problem –hence the RBA Governor’s appeal to other regulators in his policy statement.
…The RBA made a tough call that history will ultimately judge.
No, no major dislocation. But where would we be right now if the RBA had followed Mr McKibbin’s advice of the past two years or so and not cut rates at all, and even hiked (though he was one of the few with some useful alternative suggestions about how to contain the currency).
Even so, had rates been higher, it’s fair to we’d have been at much greater risk of a “major dislocation”.
History will judge that the RBA was behind the curve all the way down.