Lunatic RBA sticks head in cloaca

From the RBA just now:

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

The outlook for the global economy remains reasonable, although the risks are tilted to the downside. Growth in international trade has declined and investment intentions have softened in a number of countries. In China, the authorities have taken steps to support the economy, while addressing risks in the financial system. In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up.

Global financial conditions remain accommodative. Long-term bond yields are low, consistent with the subdued outlook for inflation, and equity markets have strengthened. Risk premiums also remain low. In Australia, long-term bond yields are at historically low levels and short-term bank funding costs have declined further. Some lending rates have declined recently, although the average mortgage rate paid is unchanged. The Australian dollar is at the low end of its narrow range of recent times.

The central scenario is for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.

The Australian labour market remains strong. There has been a significant increase in employment, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these positive developments, there has been little further progress in reducing unemployment over the past six months. The unemployment rate has been broadly steady at around 5 per cent over this time and is expected to remain around this level over the next year or so, before declining a little to 4¾ per cent in 2021. The strong employment growth over the past year or so has led to some pick-up in wages growth, which is a welcome development. Some further lift in wages growth is expected, although this is likely to be a gradual process.

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

The inflation data for the March quarter were noticeably lower than expected and suggest subdued inflationary pressures across much of the economy. Over the year, inflation was 1.3 per cent and, in underlying terms, was 1.6 per cent. Lower housing-related costs and a range of policy decisions affecting administered prices both contributed to this outcome. Looking forward, inflation is expected to pick up, but to do so only gradually. The central scenario is for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that. In headline terms, inflation is expected to be around 2 per cent this year, boosted by the recent increase in petrol prices.

The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.

Lol. Not even an explicit easing bias though that last bit is implicitly so. And, as we know from long and painful experience, whenever the loon speaks the battler rises:

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  1. DingwallMEMBER

    Copy/paste…. the bots initially saw a few words like “downside”, declined” and “softened” and the poo spiked down but then realised the thing really said “everything is awesome” and spiked 0.6%…….. and they keep saying they expect most things to “pick up” … said it at least 3 times along with that 2.75% growth target……… sigh

  2. Boom times are everywhere, the average Australian has never had such good economic times.
    I am surprised they didn’t hike rates!

  3. GunnamattaMEMBER

    Time to revisit the mandate, policy positioning and tools of the RBA.

    All the same type of people arriving at the same conclusion with the one tool.

    But no change to bias, Given the data, is pretty surreal, and almost certainly has baked in a bona fide economic event. There needs to be some fresh and intellectually rigorous thinking somewhere

    • Would it be worth free floating interest rates instead of them being set (Manipulated) by the RBA?? It seems that the market, if rates were free floating, would not have allowed debt to get so high as demand for loans increased….

  4. Monetary policy can’t fix fiscal mistakes. Holding until the sht really hits the fan is the right move.
    Don’t worry, won’t be a long wait now the negative feedback loop from property of increasing unemployment and slowing credit impulse are in full swing.

    • AndrewMEMBER

      When Penguin, when……when is this thing finally going to blow. I am quickly losing faith.

      • Once unemployment starts moving. I think the clock is ticking…. within 6 months.

    • DominicMEMBER

      I’ve come to the conclusion that the RBA is not as clueless as they seem and they really don’t believe a word of the drivel they’ve been trotting out these past few months. The bottom line is this: there is one shell left in the breach and they daren’t fire it until they see the whites of recession’s eyes. A cash rate of 1.5% is as close to out of ammo as you get.

      1.5% is ‘dire emergency’ rates and QE (here in straya) is the equivalent of: we’re totally and utterly fvcked.

      • This x1000. The second half of this year and first half of next is when the show will really get going…

        They will wait until they have quarter on quarter confirmation that unemployment is going up, inflation is nothing, and GDP slows. That’s their mandate.

        Phil Lowe wrote a paper years ago saying that in this situation you don’t cut. I think that line of thought is what got him the top job.

        I reckon given no easing bias August at soonest for a cut. We’re in the endgame now. AUD range bound till then 70-72, unless there is some event or trade deal.

      • tripsterMEMBER

        Completely agree Dominic. Someone in the mainstream should be reporting an analysis along these lines

    • Someone on this site suggested to bet on ‘no change’ with the bookies. Nice odds at 1.64 I picked up. Greatest odds for any bet I ever made!

    • DingwallMEMBER

      When it comes to the RBA, it’s a coin toss as to what innuendo they will include in their prose….

  5. Pfh007MEMBER

    The missing paragraph

    “The board is aware that there are market observers who believe the board should attempt to manipulate the AUD with some pea shooter rate cuts. The board reminds the market observers that manipulating exchange rates with the target rate is not part of the Bank’s charter on any charitable interpretation and anyway Big Dog Fed would bite us if we did. Those Fed swap lines do not grow on trees peeps.”

    • melbourneguy

      Love it PFH!!!!

      Exactly …. go back to the Charter:
      – the stability of the currency of Australia;
      – the maintenance of full employment in Australia; and
      – the economic prosperity and welfare of the people of Australia.

      • Pfh007MEMBER

        Smart arse?

        A bit of humour might succeed where a pure appeal to logic fails.

        I don’t recall ANY statement by the RBA ever where they entertain the use of the target rate to manipulate the AUD.

        So if they are going to use the target rate for that purpose it is going to be a top secret activity that is never acknowledge or minuted. How likely is that ?

        If anything the RBA rave on and on about how the AUD response to a new target rate is life and peeps just have to suck it up.

        Plus I don’t specifically want a lower AUD. I want an AUD that reflects productive not speculative or predatory capital flows.

      • SweeperMEMBER

        They don’t need to say it 007 because everyone knows the two transmission mechanisms are 1. Housing & 2.the Aussie dollar

        Cutting the target rate effects both. Boosting housing increases domestic demand for Australian produced goods, lowering the exchange rate boosts foreign demand for Australian produced goods.
        Just because they don’t set a target for the exchange rate doesn’t mean they aren’t trying to manipulate it. They are trying to manipulate it just as an intermediate target which moves about depending on inflation.

      • Pfh007MEMBER


        “..They don’t need to say it…”

        They don’t say it because it is NOT a permissible target of monetary policy in the current paradigm. No different to the way most people refuse to discuss overt regulation of capital flows. It’s just not neoliberal cricket.

        If it were why wouldn’t they talk about it.

        They sure don’t have any concerns explaining a target rates objectives in terms of supporting demand aka credit demand for residential housing.

      • SweeperMEMBER

        It’s not their stated final target but it is an intermediate one or actually an instrument really. The FX rate is just an asset price, cutting interest rates can be restated / is equivalent to boosting asset prices starting with short term bills out the curve incl. the FX rate (increasing the value of foreign assets in Aussie dollars) via uncovered interest parity.
        ie. it doesn’t need to be stated because it would be impossible for them not to manipulate the fx rate through interest rate moves. especially when housing is flat the fx rate is almost the sole lever now.

      • Pfh007MEMBER


        It is not a stated target of monetary policy because it is not a permissible target of monetary policy.

        Of course changes to the target rate may have an impact on the AUD but that is a world of difference from making the level of the AUD an explicit target of monetary policy.

        That they refuse to discuss the AUD impact of monetary policy it is just an aspect of the voodoo that is neoliberal economics.

        I don’t have a problem with making the level of the AUD a target of policy but I would prefer we don’t beat around the bush and instead just regulate the unproductive, pointless and out right predatory capital flows that really make a difference rather fiddle around with the target rate while denying the AUD is the objective (and then stuff around with a bunch of Macroprudential to limit the damage).

      • SweeperMEMBER

        But even if you had no capital mobility except through official channels the RBA would still need to consider the effect of changes in interest rates on the exchange rate even if it were pegged directly.
        Because pegging an undervalued currency when interest rates are high and the economy is strong would require large sales of Aussie dollars and would end up be self defeating as inflation would boost the real exchange rate.
        Pegging an overvalued currency when interest rates are low has a clear expiry date based on the level of foreign reserves.

        In other words it is impossible to manipulate the value of the currency without considering the effect of interest rates over the long run even with almost no capital mobility.

        Say you increased the cash rate to 5% and lowered the fx rate to 20c. There is suddenly a huge demand for Aussie dollars in foreign markets outside RBA control. How much Aussie dollars do they have to dump into the market in order to maintain the exchange rate? Will this bid down the target rate?

      • @ HnH

        Seriously ?? We all want a much lower $$AUD ?? Peter Costello once said something like, that the strength of the economy is displayed by the strength of the currency.

        What is the strength of the Venezuela peso ? Maybe Argentina, Peru, Brazil, Sth Africa and so on ?? How well are those economies doing ??

        The Australian miners ( mostly foreign owned ) and the Australian exporters ( do we still have any ? Nope ! ) will be the beneficiaries of a lower $$$AUD

        We will all have to pay more for petrol, cars, TV’s etc etc etc as we are now a importing nation and our banana peso $$AUD will buy very little.

        Maybe you want more foreign tourists and foreign buyers of property because our expensive homes suddenly become so much cheaper for foreigners via the $$AUD fall.

      • Sweeper,

        Good grief – pegging? Who is suggesting bringing that back? Not me. Let it go.

        The RBA do not set monetary policy to target the AUD.

        That changes in the target MAY have an impact on the AUD is beside the point.


        Agree. A high exchange rate is a very good thing unless it is a result of manipulation or policies that are likely to result in longer term damage to the economy.

        For the most part the AUD is currently a result of the demand for our dirt and that would require a sizeable offshore sovereign wealth fund to offset.

        My concern is a higher AUD resulting from asset sales and sales of claims on our future incomes in order to fund consumption.


    I didn’t think they’d do anything when we’re 12 days out from a federal election and most likely a change of gummint. I know they’re supposed to be independent yadder yadder, but even so.

  7. The RBA has been wise not to be perceived as partial during a Federal election; inflation is not negative yet, so panicking for lower rates is not yet necessary. Be aware any cut to the rate would be taken internationally as an official signal the AU economy is in trouble – that is undesired at the moment.

  8. No explicit easing bias, the rba clearly want to get the most bang for the buck when they cut.
    Its interesting that the dollar has completely erased the negative trade news.

    • Arrow2MEMBER

      Well, that’s also what the RBA said last month, so…

      But good article. Thanks Ding.