Lunatic RBA puts pride before the fall

The lunatic RBA February rates decision is out and it actually has no idea what it is doing:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The global economy grew above trend in 2018, although it slowed in the second half of the year. Unemployment rates in most advanced economies are low. The outlook for global growth remains reasonable, although downside risks have increased. The trade tensions are affecting global trade and some investment decisions. Growth in the Chinese economy has continued to slow, with the authorities easing policy while continuing to pay close attention to the risks in the financial sector. Globally, headline inflation rates have moved lower due to the decline in oil prices, although core inflation has picked up in a number of economies.

Financial conditions in the advanced economies tightened in late 2018, but remain accommodative. Equity prices declined and credit spreads increased, but these moves have since been partly reversed. Market participants no longer expect a further tightening of monetary policy in the United States. Government bond yields have declined in most countries, including Australia. The Australian dollar has remained within the narrow range of recent times. The terms of trade have increased over the past couple of years, but are expected to decline over time.

The central scenario is for the Australian economy to grow by around 3 per cent this year and by a little less in 2020 due to slower growth in exports of resources. The growth outlook is being supported by rising business investment and higher levels of spending on public infrastructure. As is the case globally, some downside risks have increased. GDP growth in the September quarter was weaker than expected. This was largely due to slow growth in household consumption and income, although the consumption data have been volatile and subject to revision over recent quarters. Growth in household income has been low over recent years, but is expected to pick up and support household spending. The main domestic uncertainty remains around the outlook for household spending and the effect of falling housing prices in some cities.

The housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices. Conditions have weakened further in both markets and rent inflation remains low. Credit conditions for some borrowers are tighter than they have been. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased to an annualised pace of 5½ per cent. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

The labour market remains strong, with the unemployment rate at 5 per cent. A further decline in the unemployment rate to 4¾ per cent is expected over the next couple of years. The vacancy rate is high and there are reports of skills shortages in some areas. The stronger labour market has led to some pick-up in wages growth, which is a welcome development. The improvement in the labour market should see some further lift in wages growth over time, although this is still expected to be a gradual process.

Inflation remains low and stable. Over 2018, CPI inflation was 1.8 per cent and in underlying terms inflation was 1¾ per cent. Underlying inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual and to take a little longer than earlier expected. The central scenario is for underlying inflation to be 2 per cent this year and 2¼ per cent in 2020. Headline inflation is expected to decline in the near term because of lower petrol prices.

The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Lol. It’s “central scenario” is in for a very rude shock.


  1. HODL is GOODL ;).

    Lower teh rates will break thing.

    Now go out and buy some TOYATA’s – nothing to see here folks everything is fine.

      • 1 month forwards in the OIS market show the market was pricing in a 50% chance of one rate cut this calendar 2019, more to the back end. RBA statement showing no support at all means some market participants positioned for a rate cut have backed off a bit. For today.
        Key issue looking out is whether the property slowdown can be held as that with limited income and employment consequences for the broader economy, or whether we see second round effects and a consequent feedback loop for incomes and employment and therefore forced property selling.
        I have no doubt RBA and Treasury are keeping a close eye on that one, and I hope they get it right; this is not a good time for a policy mistake.
        Just read the CBA comment above … wealth effects in NSW in 2018H2 … bit of a worry. Leading VIC by a few months in this cycle so far, both of them showing RC credit tightening.

    • Silly me, I’d forgotten it was the first Tuesday of the month and was wondering what caused the spike in the AUD. Of course! It’s the usual RBA jawbone.

      • I’m sure you already know this, but, when the time comes, don’t use a bank to do your currency exchange!
        Bank rates are shiite. Another example of ripping off trusting customers.

  2. Looks like they don’t give a fig for what house prices are doing. I guess they ignored them on the way up

    • In reality, if they dropped rates the banks wouldn’t pass on much anyway. At 1.50% you’re almost out of ammo.

      It’s hard to know if they ignored house prices or actively dropped rates to keep the party going. I suspect the latter.

      It’s a pity Hayne did not have a mandate to look into the Reserve Bank.

  3. We all know monetary policy is not only broken but fundamentally corrupt, when one considers the primary transmission mechanism to the economy is via housing debt speculation.

    Perhaps we should applaud the RBA for ongoing inaction and instead take action to fix the problem…..which includes fixing the role of the RBA.

    More of the same is just more of the same.

    • GunnamattaMEMBER

      I am with you but i would have thought that with retail chains going down, housing going down, consumption down, a banking RC which will presumably get around to paring credit, and an electoral cycle which will throw goodies but will put real policy six months down the track, and wages and inflation sniffing their own farts….

      ….they could have toned down the statement from Hyper Pangloss even if they werent cutting

      • And yet Gunna, according to the RBA, housing credit still growing at 5.5%. And house prices are plunging? Someone’s data is off in la la land. Guess we’ll find out in 18 months…

      • csfn,

        I agree, the RBA and APRA are not just going to stand around watching a credit crunch take hold. They are not silly, they understand that our current monetary model requires constant growth in credit and they understand the dangers of allowing a deflationary mindset become established in asset price markets.

        And what ever the RBA and APRA do to get the credit flowing you can be sure there will be bi-partisan support.

        It is worth keeping in mind that unemployment is still pretty low and the AUD is still sitting quite pretty.

        We hear a lot of forecasts of doom (i have been hearing them since 2001) but the reality has yet to really match the forecasts.

        I am not surprised that the RBA has held fire again this month.

        When a real problem manifests itself the ALP will be in power and those guys love a bit of fiscal friskiness.

      • Forrest GumpMEMBER

        How can you have rising consumption when 120% of your income goes to paying off a mortgage?

    • Jumping jack flash

      Infinite debt growth is a requirment when your economy doesn’t actually grow itself through increased productivity, innovation and productive capacity.

      For maximum debt growth you simply attach the debt to the biggest and most expensive thing, and then tweak the system over time for maximum speed and efficiency. The result is what we have today. A diabolical system where adding new debt actually increases debt capacity, and simultaneously secures the existing debt!

      Its just so simple. Its a wonder nobody thought of doing this exact thing before….

      Oh, wait….

  4. or they know somrthing you dont?
    as why else would you look so silly re the data we’re lookin at?

  5. HadronCollision

    Hayne was a look over there device to keep the GenPub asking srsly questions about the actual system itself and the process by which money is created distributed and priced

    We all know that

    How the journos are missing it is beyond me


    Jeez I sound like Zac de la Rocha (the times suit a reformation, oui?)

  6. Either markets en masse are seriously miss-pricing Australian assets, or MB has it wrong somewhere.

    Or the frightening hybrid where current pricing is correct providing your time frame is weeks to months, and you’d rather not think about 1987 followed by the late 1890s thereafter.

    • If you look at the price / yield of long term AGB’s over the last 12 months you can see some parts of the market are awake to what is happening.

  7. Do you think the government has quietly asked them to do “nothing” until the election? Or are they all “Conservative” aligned politically so are just holding out?

    Its easy to assume incompetent but that old adage comes to mind ….. ” its easy to ascribe to incompetence what could more accurately be explained by political corruption”

    • I thought the RBA was controlled by the Commonwealth, so only the Governor General can make those kind of requests. Perhaps the Queen wants our property to correct, so she can afford to retire here 🙂

    • Jumping jack flash

      Doubt it. More likely the banks have asked them.
      30 year slow melt. Too quick and the whole thing implodes. Too little and the banks’ banks get suspicious and raise their rates – and the whole thing implodes.

      Its a very precarious situation when there’s simply too much debt.

  8. I am just flying a kite, not anchored to this theory. I went to see the Chris Bowen speech last night and he said Labor would boost consumption by cutting income taxes through closing tax loopholes. Tax cuts in the first Budget for all on 125k and less. Maybe the Reserve Bank sees this fiscal stimulus imminently as a reason not to cut rates?

  9. Jumping jack flash

    No cuts. No raises.
    Steady as she goes for the next 30 years until the debt is repaid.

    No risk, though. None.