It couldn’t happen to a nicer central bank. The world’s most corrupt monetary manager is about to do a spectacular volte face with seventeen twists. After years of pretending that it understands the economy, that Australia’s outlook is relentlessly bullish, that it was a good idea to supplant a mining boom and bust with a housing boom and bust, that Australia is exceptional and can handle deleveraging, and that “the next move is up” for interest rates, a Tyrannosaurus sized egg is about to land on the face of the Reserve Bank of Australia as it rolls over and cuts the cash rate.
Of course it will also land on the entire tightly clustered pack of economists that hang on the bank’s every word like emperor penguins in a blizzard. That’s hardly new. Australia’s economic forecasting community long ago morphed into a dodgy RBA subsidiary.
There are three major reasons for the forthcoming easing. First and foremost, Australian house prices are crashing. Nothing but monetary easing can stop it. The long preened investor class is doomed. Credit has been as cheap as it is going to get. Macroprudential policy is still going to tighten as leverage ratios and comprehensive credit reporting come to bear. The Hayne Royal Commission has already shifted banks away from their sub-prime loan assessments and that is not going to change materially. Finally, the great tax giveaway that has underpinned their negative income carry is a goner.
