Capital Economics: RBA falling behind housing “threat”

Via Capital Economics:

  • The RBA will probably reduce its GDP growth forecasts
  • but should still signal that the next move in rates will be up
  • Our more pessimistic outlook for economic activity, the labour market and inflation suggest that the Bank may instead have to cut interest rates before long.
  • We believe that the Bank continues to underestimate the threat from the weaker housing market
  • Housing downturn and tighter credit conditions will weigh on GDP growth
  • Unemployment rate should rise again and wage growth will weaken
  • We now expect the Bank to lower interest rates to 1.25% by the end of the year and follow up with an additional 25bp cut in the first half of next year

When it cuts it will go two in quick succession. Then more next year when not enough happens.

Unless it leaves to too late and it will be panic slash and burn.

Comments

  1. they have been for 10 years. the threat was presented by the run up. the bust is the not the threat, its the result.

    • Bingo!

      The funniest thing is the mug punters keep seeing headlines like in the ABC today that prices are down 1%…and fail to realise its 1% a month (or more) and don’t annualise it.

      Until it stops sounding like a dripping tap in the media and gets replaced by a thundering waterfall this thing will take way too much time to capitulate. Then it’ll turn turtle in a heartbeat

  2. “Unless it leaves to too late and it will be panic slash and burn.”
    As long as everyone believes that lowering interest rates is the solution it is inevitably going to turn into panic slash and burn. In fact it is likely there will be more than just figurative burning.
    So this result, given current modern economic policy derangement, is going to happen. What doesn’t burn?

      • Thanks Reusa!!! Sometimes I forget it is so simple!!!
        It’s good to get straightened out every now and again !!!!!

      • There it is, flawse indicating his inclination toward reusa relations attendance for some fair dinkum straightening-out.

      • And in the long run when interest rates go to zero (don’t worry the rest of the world is there or will join us again there soon) there’s always QE/MMT theories to inject money into people willing to buy/hold houses stimulating the housing market as the true monetary system it always implicitly has become. You can do this forever and it will fix all the things.

  3. “As to the patient? Well, he’s back on the drip, smiling at the prospect of his final fix. The 10 (40)(edit)year addiction never ended and the patient remains uncured. Yet the patient can’t get a new high without new drugs and so the current satisfaction at seeing the drip may turn into a great disappointment first before the new drugs finally arrive. See the Fed (RBA) doctors have been withholding a vital piece of information from the patient: We can’t cure you, we can only get you hooked on drugs to make you feel better. In medical terms that’s called malpractice, which typically kills off the credibility of any medical professional. It shouldn’t be any different for a central bank. And it isn’t.”
    Sven Henrich with a minor edit.
    https://northmantrader.com/2019/01/31/an-obituary-fred-credibility/

  4. Jumping jack flash

    Let them cut for all the little good it will do and for the inflation that will occur as a result.

    Slash and burn would be catastrophic.

    But i guess the cpi may squeeze past 2.5% as a result.

    Wages of course will still slide down.
    Stagflation here we come!!