Lunatic RBA shifts forever neutral

The RBA is out with its monthly statement of lunatic ramblings and it’s neutral forever versus rate cuts ahead forever now:

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. The slower pace of growth has continued into 2019. The outlook for the global economy remains reasonable, although downside risks have increased. The trade tensions remain a source of uncertainty. In China, the authorities have taken further steps to ease financing conditions, partly in response to slower growth in the economy. Globally, headline inflation rates have moved lower following the earlier decline in oil prices, although core inflation has picked up in a number of economies. In most advanced economies, unemployment rates are low and wages growth has picked up.

Overall, global financial conditions remain accommodative. They have eased recently after tightening around the turn of year. Long-term bond yields have declined, consistent with the subdued outlook for inflation and lower expectations for future policy rates in a number of advanced economies. Also, equity markets have risen, supported by growth in corporate earnings. In Australia, short-term bank funding costs have moderated, although they remain a little higher than a few years ago. The Australian dollar has remained within the narrow range of recent times. While the terms of trade have increased over the past couple of years, they are expected to decline over time.

The Australian labour market remains strong. There has been a significant increase in employment and the unemployment rate is 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.

Other indicators suggest growth in the Australian economy slowed over the second half of 2018. The central scenario is still for the Australian economy to grow by around 3 per cent this year. The growth outlook is being supported by rising business investment, higher levels of spending on public infrastructure and increased employment. The main domestic uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling housing prices in some cities. A pick-up in growth in household income is nonetheless expected to support household spending over the next year.

The adjustment in the Sydney and Melbourne housing markets is continuing, after the earlier large run-up in prices. Conditions remain soft in both markets and rent inflation remains low. Credit conditions for some borrowers have tightened a little further over the past year or so. 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 further. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

Inflation remains low and stable. 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.

You can lead a lunatic to the sanitarium but you can’t make him attend the therapy sessions.

Forever neutral soon to turn into forever cuts, starting tomorrow with cratering GDP.


  1. “In Australia, short-term bank funding costs have moderated, although they remain a little higher than a few years ago.”

    There you go. Banks are now able to reverse their recent “rising funding costs” rate hikes and RBA doesn’t need to act. Phil Lowe sees right through the bankster cartel and their endless whining for rate cuts.

      • The RBA mandate does not include expanding private bank profits. Phil Lowe is well aware that Australia’s banks are among the most profitable in the world and part of the reason for that is their gaming of the RBA.

      • PassingInterest

        No, a cultural change is required to repair investor expectations around Bank ROE.

      • A culture change among investors used to decades of seeing their tax free dividends grow at three times the rate of wages? That would be something to see. Let them demonstrate their new customer focus and choose between lower NIMs, or higher default rates. Either way implies lower dividends.

    • Who’s life? On average – between the 1%ers and the 99%ers – we’re actually just peaches…

      • Maybe on a group level – based on one’s income, location, age etc.
        Commute times, purchasing power, working hours etc can be used as measures.

  2. BrentonMEMBER

    Relying on continued employment strength to drive a swing in wages/consumption (GDP)…. anytime now.

    Seems like they’re digging in and are going to look through the downturn until unemployment turns. Appears CS and Westpac have it right, will be H2 before we see cuts.

    • Unemployment is very low by historical standards.

      Should a slight uptick prompt us to reduce rates below the lowest every levels in recorded history?

      I certainly hope not.

      • Jumping jack flash

        Unemployment was fixed by Howard. It’ll never be a problem again.

        But if it becomes a problem after that, then look out below!!

  3. More tea and biscuits please, and could it be possible to have the shortbread’s this time…oh, yes, the statement, just release last months one, that’ll be fine..

    • proofreadersMEMBER

      Tea and bikkies – who are you kidding? Champagne and caviar are the ordre de jour at instos where the taxpayer is footing the bill?

      • Tea and bickies as they are not that sophisticated…as they are proving…Champagne is for the bankers, these guys public servants!

  4. Strange times. A Governor who is sitting on his hands.
    If GDP prints low, and inflation comes in low, then those hands will become very sweaty indeed.

  5. No interest rate sugar for FIRE fatties with USDA levels of marbleing!

    Harden up.

    A bit of policy innovation is what is needed.

    Artherosclerosis of the policy class is going to give the nation a stroke.

    • Mining BoganMEMBER

      This country is in such a state that even our stinky little dollar is depressed.

    • Because GDP is likely to increase the volume of howling from the banks and property industry that only a rate cut will fix thing,

  6. “A further decline in the unemployment rate to 4¾ per cent is expected over the next couple of years.”

    Hmmm, ok.. why?

    “The vacancy rate is high and there are reports of skills shortages in some areas.”

    Oh! It’s all good then.

      • In some states, yes. What’s needed is the Federal Government to splash some cash around in WA. A smart alternative would be for the WA government to hike iron ore royalties, which could be passed on to the Chinese.

        Doesn’t make a lot of sense that our export powerhouse is our weakest economy.

    • Hi Les

      Thousands of fruit pickers desperately needed in AUS especially in VIC as the illegal workers are now afraid to turn up for work in case they get caught.

  7. … CHINA …

    It Begins: China’s Largest Property Developer Will Sell All Homes At A 10% Discount | Zero Hedge

    Thousands Fired By Chinese Tech Companies Amid Sudden Breakout In Austerity | Zero Hedge

    Deflationary Red Alert: Chinese Car Dealers Are Slashing Prices, And It’s Not Helping | Zero Hedge

  8. Here’s a mexican standoff if i have ever seen one. I think rba will stare down the banks knowing full well that they cannot be blamed for this given the RC.

  9. Jumping jack flash

    So how long until the RC blows over and the debt machine cranks up again?

    Any time now.

    People are patiently waiting for their turn for instant riches from someone else’s debt obligation. It wouldn’t be fair for them to miss out.