Again great stuff from Damien Boey at Credit Suisse who has a much better grasp of the economy than does the lunatic RBA: By now, CPI, unemployment and RBA forecast downgrades are becoming old news … The Consensus view is that the RBA will moderately downgrade its forecasts, but not capitulate on its rate stance
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 UBS: Home sales collapse to 21-yr low; very negative for renovations & consumption Home sales declined further, slumping to near the lowest level in 21 years. The pace of falls accelerated from a trend of -10% y/y, to around -16% now. The turnover rate (sales divided by stock) collapsed to a ~record low recently.
The oil tanker begins its turn, via Morgan Stanley: “We have removed rate hikes from our 2020 outlook, as our AlphaWise research points to fragilities in the household sector and a more prolonged consumer adjustment.” “Weakness in the housing/consumer sectors should continue through 2019,and we think further forecast downgrades from the RBA and the adoption
Via Capital Economics: The RBA will probably reduce its GDP growth forecasts but should still signal that the next move in rates will be up Our more pessimistic outlook for economic activity, the labour market and inflation suggest that the Bank may instead have to cut interest rates before long. We believe that the Bank
ING on the move, via Mozo: Online lender ING has become the latest bank to lift its variable home loan rates following an announcement earlier today. The lender will raise rates across all of its variable rate home loan products by 15 basis points, effective as of February 7, 2019. And according to Mozo Product Data Manager,
Via WBC’s Bill Evans: After the usual summer recess the Reserve Bank will conduct its Board meeting on February 5, followed by a speech from Governor Lowe on February 6 and the February Statement on Monetary Policy which will print on February 8. Of course there will be no rate change following the Board meeting
The terrible Brazilian mining tragedy that has iron ore prices running wild is something of a Black Swan event for Australia. Iron ore prices are volumes for the year ahead will now be higher than previously thought so we must ask if this changes the path for an economy clearly on the slide. Goldman’s assessment
By Leith van Onselen The Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) data for the December quarter 0f 2018, which registered both soft headline and underlying inflation. According to the ABS, headline CPI rose by 0.5% in the December quarter, 0.1% above the September quarter’s 0.4%: However, on an annual
From Morgan Stanley today comes some sense at last, via ForexLive. On the NAB survey: decline was led by a noticeable reduction in profitability and trading conditions the lowest level for both since mid-2014 The weak business sentiment compounds the decline in confidence we have already observed on the household side On the RBA: RBA
The Reserve Bank of Australia will go down in history not only as the most corrupt central in the world but also the planet’s most stupid (or high). Let’s recall its record over this business cycle. Post-GFC it got it right, raising interest rates to increase bank profitability and suck in deposits to allow the financial
Via The Australian comes an escaped lunatic: The clearest indicators of ongoing momentum of Australia’s economy are strong employment growth and a rapid shift in the federal budget toward surpluses, said Ian Harper, a member of the Reserve Bank of Australia’s policy-setting board. …“The domestic economy, everything I’ve seen, shows that it is still strong,”
Via Damien Boey at Credit Suisse: The NAB survey revealed a sharp decline in business conditions in December to a moderate +2 from +11. Confidence was unchanged, at +3. For us, capex intentions are the most significant component of the NAB conditions survey. Capex intentions dropped to +7 in December from +15. Firms still have
Hoocoodanode? From NAB: Business conditions fell sharply in December, and while caution should be taken when interpreting data around the Christmas/New Year period, this outcome continues the downward trend in conditions over the second half of 2018. At face value, the fall over the past six months suggests a significant slowing in the momentum of
Which is of course an absurd proposition. But it is true in a certain sense. Higher commodity prices are now irrelevant to the Aussie economy while lower are a danger. Why is this? The Australian economy is a basic two-step machine. First, it makes profits largely from international dirt sales. Second, it leverages that income via
From Damien Boey at Credit Suisse Yesterday, NAB announced a 12bps increase on owner-occupier conventional mortgages, and a 16bps increase on interest-only investor mortgages. In the round of out-of-cycle rate hikes last year, NAB was the odd one out, choosing not to hike with its competitors. Therefore, today’s hike brings NAB more in line with
by Chris Becker Oh it’s been a fun day so far trading Aussie dollar! First the numberwang unemployment print, now the National Australia Bank (NAB) hiking interest rates out of cycle. Bang comes down the Australian dollar: From the horse’s mouth: NAB Chief Customer Officer – Consumer Banking, Mike Baird said the decision to increase
By Leith van Onselen MB’s long-held view that the next move in official interest rates will be down has received support from money markets, which now ascribe a 50-50 chance of cuts by the end of the year. From The Age: After spending much of 2018 predicting that 2019 would be the year when official
By Leith van Onselen Slowly but surely, economists are falling into line with MB that the next move in official interest rates will be down, most likely this year. From The AFR: Capital Economics has become the fourth forecaster to call for interest rate cuts by the Reserve Bank of Australia this year, joining Market
From George Tharenou at UBS: …a broadening range of weaker data raises the risk of RBA rate cut. The continued fall in home loans suggests that credit tightening is still playing out, ahead of the Royal Commission final report (due Feb 1) & the next three game changers of Debt-To-Income limits, & potentially negative gearing
You’d have to be as blind as the RBA to miss the signals. GDP is made up of six components and they are not going well on balance: government consumption is strong and likely to stay that way; government investment is peaking as the NBN rolls off and infrastructure starts fade; household consumption is weakening
Via the excellent Damien Boey at Credit Suisse: In 2018, one of the major themes we wrote about was the risk of impairment to the monetary transmission mechanism via out-of-cycle rate hikes. In 2Q and 3Q last year, we did indeed see the banks hike rates out-of-cycle, initially the smaller regionals, and then the majors.
As predictable as the Sun rising: BOQ today announced interest rates across a range of lending products will be increasing by between 11 basis points (bps) and 18 bps. The Economy Owner Occupier Principal and Interest rate is increasing by 11bps A number of other BOQ home loans and lines of credit rates are increasing
Via Martin North: Digital Finance Analytics (DFA) has released the December 2018 mortgage stress and default analysis update. The latest RBA data on household debt to income to September fell a little to 188.6, but still remains highly elevated. The housing debt ratio continues to climb to a new record of 139.6, according to the
It couldn’t happen to a nicer central bank. The world’s most corrupt monetary manager is about to do a spectacular volte face with seventeen twists. After years of pretending that it understands the economy, that Australia’s outlook is relentlessly bullish, that it was a good idea to supplant a mining boom and bust with a
Via Bloomie over the weekend: President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell as his frustration with the central bank chief intensified following this week’s interest-rate hike and months of stock-market losses, according to four people familiar with the matter. Advisers close to Trump aren’t convinced he would move against Powell and