Via NAB which now sees -15% for Sydney and Melbourne house prices: We have delayed our expectation for the first RBA increase in the cash rate to the second half of 2020. While output growth has been largely as expected over the 2018, wages pressure remains weak and hence inflationary pressure has remained low, with
Australian interest rates are set by the Reserve Bank of Australia, an independent body established in 1959. It is guided by an inflation targeting regime that seeks price stability in the 2-3% consumer price index band. The RBA originally also governed prudential policy but following several large scandals and bankruptcies in the late 1990s that role was separated into a discrete entity titled the Australian Prudential Regulation Authority.
The RBA is widely well-regarded despite a recent history of buried corruption allegations and a board of business rent seekers that, in more ethical nations, would not have their hands anywhere near monetary policy levers.
In 1990, Australian interest rates were set at 17.5%. But during the Great Moderation, interest rates consistently fell alongside inflation and oscillated in a band between 1.5% and 7.5%.
Owing to an endowment of resources that proved very attractive to China during the Global Financial Crisis, Australian interest rates did not fall to the lows experienced in other developed markets. Indeed, Australia was the first developed market to raise interest after the crisis though it has subsequently had to lower them again as the commodity boom subsided.
During the 2000s, Australian interest rates began to be influenced by external economic pressures much more than previously. This process was driven by the huge offshore borrowing of Australia’s big four banks in wholesale markets. As their offshore liabilities ballooned, the banks were increasingly exposed to the vicissitudes of far flung markets and investors. This reached a head in the global financial crisis of 2008 when banks faced much higher demands from offshore investors for better risk-adjusted returns, forcing them to break with the Australian cash rate in setting local interest rates.
Ever since, Australian bank have regularly adjusted lending and deposit interest rates unilaterally and independently around the cash rate set by the RBA. These interest rates moves were a constant source of political friction as politicians sought to protect the Australian property bubble.
In 2015, Australian interest rate policy was forced to return to a defacto shared responsibility arrangement between the RBA and APRA. With the lowest interest rates in fifty years, the Australian property bubble inflated to new dimensions even as a global yield trade drove up the value of the Australian dollar, threatening economic growth. Eventually the solution found was to apply macroprudential policy to some mortgage lending so that interest rates could be lowered to take pressure off the currency.
MacroBusiness was the most accurate forecaster on Australia interest rates in the market from 2011 forward. It predicted both the turn in rates downwards in 2011 and has had the most dovish outlook ever since. It also lead the debate around, and implementation of, macroprudential tools in 2014. MacroBusiness covers all apposite data and wider analysis of these issues daily.
Via Jonathon Shapiro at the AFR late yesterday: Housing bears are famous for hearing what they want to hear. And last week, Reserve Bank assistant governor Guy Debelle made it very easy when he dared to suggest that “quantitative easing” was a policy option. For the bears, who appear to be revelling in each set of weak auction
From RBA boffin Christopher Kent today: Thank you for the opportunity to speak at this Bloomberg event today. I’d like to address some issues about how monetary policy decisions taken elsewhere influence interest rates here in Australia. Australia is a small open economy that is influenced by developments in the rest of the world. Financial
It is a laugh a minute now for the politico-housing complex. First up the RBA, which “economists” say was actually bullish last week: Economists believe the market misinterpreted comments by Reserve Bank of Australia deputy governor Guy Debelle, whose speech on Thursday was received as dovish but in fact was “frank” and consistent in substance
From Guy Debelle, deputy governor of the RBA: It is now just over 10 years since the date that people most associate with the Global Financial Crisis (GFC), namely 15 September, the day that Lehman Brothers filed for bankruptcy.There have been quite a number of articles written in recent months looking back at that time
I like John Kehoe. He has talent. But he should be careful of what company he keeps: One quarter of soft economic activity does not make a trend, so chatter about the Reserve Bank of Australia being forced to switch its bias to interest rate cuts is premature. …the fundamentals for the local economy remain
Via the Kouk today, given he and MB are the only ones to have gotten this right: In the wake of the September quarter national accounts, and with accumulating information on house prices, dwelling investment, the global economy and spare capacity in the labour market, I have revised my outlook for official interest rates. For
Via our Shane: Given the combination of falling house prices, tightening credit conditions and constrained growth which will keep wages growth weak and inflation below target we are changing our view on the RBA from being one of rates on hold out to second half of 2020 to now seeing the next move being a
From Westpac’s Bill Evans: This result will come as a disappointment to the Reserve Bank. Note that the forecast for GDP growth in 2018 for which appeared in the November Statement on Monetary Policy was 3.5%. With the first three quarters of the year totalling 2.2% the December quarter would have to print growth of
The RBA is out with its latest hold. The statement: At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent. The global economic expansion is continuing and unemployment rates in most advanced economies are low. There are, however, some signs of a slowdown in global trade, partly stemming from ongoing
As noted, last night saw some dramatic action in bond markets. Both the US and Australia were heavily bid: The US curve inverted at the short end for the first time since 2007: By contrast the Aussie curve remains bizarrely steep, held aloft by RBA stupidity: Here are the two compared with the US clearly
It’s the RBA you’re having when you’re not having an RBA and this month it says MOAR rate hikes are coming! Australia’s growth rate still stands at 0.9 percent for the June quarter while CPI inflation fell to 1.9% in the September quarter, just below the Reserve Bank of Australia’s official target band of 2-3%.
We know it’s not real because the RBA says so. But if I were less of an intellectual pygmy, I might conclude that Australian inflation peaked a months ago and continued to trend down in November with another donut on the Melbourne Institute survey. Year on year is now plunging at 1.6%: Core inflation is
Via The Age and the great work of Richard Baker and Nick Mckenzie: The night before the May 2009 story came out, then deputy governor of the Reserve Bank, Ric Battelino, rang The Age’s investigative team. “You’re not going to publish this are you?” a worked-up Battelino asked. …But even when the story was public
Its plunge into investor mortgages is a source of much amusement: In it went the moment APRA lift the 10% speed limit (actually a bit before that). There was a big lift in May from either portfolio rebalancing or an acquisition but even accounting for that the book is currently growing at 25% per annum.
So says a humiliated Wayne Byers, via Banking Day: A more frequent use of sanctions by APRA is on the cards, the regulator’s chair, Wayne Byres, told the banking royal commission yesterday. An afternoon of questioning of Byres was centred on themes of remuneration and bank culture and APRA practices in challenging boards over executive
Via Banking Day legend, Ian Rogers: Two RBA companies are finally exposed as guilty – convicted way back in 2011 – for their role in a conspiracy to bribe foreign officials. The Supreme Court of Victoria lifted a raft of non-publication orders on these matters yesterday. Common knowledge to some readers (or at last those
From Christopher Kent, Assistant Governor RBA (Financial Markets): Introduction Good afternoon, and thank you to the Australian Securitisation Forum for their invitation. It’s a pleasure to be here. Today I’ll provide an update on developments in the markets for housing and housing credit. These markets are closely related and both are of considerable interest to those
Via Bill Evans at Westpac: The minutes of the November monetary policy meeting of the Reserve Bank Board confirm the confident approach we have seen in the recent Statement on Monetary Policy. While consumption growth is still identified as a source of uncertainty, the Board expects it to remain around the 3% level over the
Via Art Berman: Crude markets had a panic attack in August and September that sent prices soaring. Sanity is now returning. Prices have fallen but are likely to move even lower over the next few months. The panic attack was caused largely by Trump’s August 7 announcement that sanctions would be re-imposed on Iran. Anxiety
Via ANZ: We have revised our housing price forecasts. Sydney and Melbourne, in particular, have been downgraded. The fall in Sydney housing prices is already the largest in many years. Prices are now 9% below the June 2017 peak, a larger correction than in 2010-11, 2008, 2004-05, 1994-95 and, by the end of this month,
RBA Governor Phil Lowe last night: Thank you for the invitation to address CEDA’s annual dinner. It has become a tradition at these dinners for the Governor of the RBA to talk about how we secure Australia’s continued economic prosperity. I would like to continue that tradition tonight. My focus is going to be on
RBA bulls in full charge: International Economic Conditions Members commenced their discussion of the global economy by noting that growth in Australia’s major trading partners had been robust in 2018. Growth was expected to ease a little over the subsequent two years, but to remain above potential in 2019. Although there had been little change
At last MB and Professor Warwick McKibbin agree, from a nice piece by Adam Creighton: Guy Carson, chief investment officer at asset manager Quick Brown Fox in Sydney, warns that the bigger economic risk isn’t price falls but the volume of transactions. “The economic fallout from the stalling residential sector and falling house prices is
Haven’t seen the note. Don’t need to. Forexlive has the wrap: Labour market numbers for October showed that jobs growth remains robust and the labour market is tightening The unemployment rate held at the six-year low of 5.0%, with some states well below that level A tightening labour market should support a further lift in
We know all of the dry tinder. The big pile of external liabilities piled high in unproductive assets protected by the firebreak of public guarantees from a clean public sheet. But the next downturn could bring something that will set fire to all of this virtually overnight: Italexit. Via Albert Edwards, king bear: The orthodox
From RBA deputy chair today: Assessing the Effects of Housing Lending Policy Measures Today I will summarise the Bank’s assessment of the various measures put in place to address the risks around housing lending. I will draw on Chapter 5 of the recent Financial Stability Review (FSR). I think it is important in terms of accountability that we