More from Captain Glenn via Fairfax:
Glenn Stevens reckons the local economy’s got a good chance of surviving a hard landing in China, thanks to having some rates firepower left.
Australia would be protected from a sharp downturn in China’s economy by lower interest rates and a flexible exchange rate, the RBA governor says.
“We can lower interest rates if there’s a case to do that,” he told a parliamentary committee when asked about policy measures to offset the effects of a possible slump in China.
“And if the Chinese economy were to experience the fabled hard landing that many people have talked about for years – and which so far hasn’t happened – you would expect in that world the exchange rate’s probably going to go down, probably quite a bit, and that will be one of the key mechanisms that helps the Australian economy cope.”
The question is would borrowing rates fall as the AAA was stripped and banks saw wholesale rates skyrocket? Some, yes, but nowhere as much as the cash rate.
And, second, given a severe China shock would hammer household confidence, who will want to borrow when Australia hits its version of ZIRP perhaps around 0.75% in the cash rate? In the GFC rates were cut 4%. This time they’ll be cut 1.25%. Is that going to deliver the same return? Nope.
But such questions are not the type to trouble everything is awesome central bankers.
