Australian interest rates

RBA back on the curve

David Llewellyn-Smith
Wednesday, 3 July 2019
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Via the excellent Damien Boey at Credit Suisse:

We have updated our proprietary financial conditions index (FCI) for Australia in the wake of the RBA’s decision to cut rates (again). And our findings are reasonably positive for the economy and risk appetite.

In our recent article, we outlined our methodology for constructing the FCI. It is based upon:

  1. The domestic price of money: proxied by the slope of the (real) yield curve
  2. The domestic availability of money: proxied by our credit impulse indicator, which in turn is based on bank credit growth, fiscal deficits, and trade balances.
  3. The international price of money: proxied by the deviation of the AUD/USD from “joint parity” equilibrium.
  4. Household cashflow constraints: proxied by growth in real wages.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.