RBA minutes: Domestic Economic Conditions Members commenced their discussion of the domestic economy by noting that labour market conditions had continued to improve, although spare capacity remains. Employment had risen further in July, the participation rate had edged higher and the unemployment rate had remained steady at 5.6 per cent. Full-time employment had risen strongly
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: Aug jobs boom 54k, surging 2.7% y/y (best since 2015), driven by full-time Employment boomed in Aug-17, up a far stronger than expected 54k m/m (UBS: +10k, mkt: +20k), the most since Mar-17, after +29k in Jul-17 (was +28k). The y/y jumped to 2.7%, the best since 2015, albeit ~consistent with stronger lead
From Bloxo: Strong jobs growth: RBA hikes are coming Today’s jobs numbers delivered a strong upside surprise, with 54k jobs created in August (market had 20k) driven mostly by full-time job creation. These numbers line up well with the other surveys, such as the NAB business survey, job vacancies and job advertisements, which are also
Via Bloomie comes RBA board member Ian Harper with strong words of warning for the hawks: While it’s “terrific” full-time employment growth is strong and unemployment is slowly coming down, it’s a “concern” to see under-employment isn’t moving much and wages and household income growth are slow, because that indicates excess capacity, Harper said in
From NAB: Stronger employment, GDP and investment data have seen us revise our forecasts lower for unemployment, and slightly increase our forecasts for GDP growth and inflation. While we remain cautious about aspects of the economic outlook, we now believe the labour market will strengthen enough to allow the RBA to remove some of the
From Goldman: The RBA’s long-standing reference to labour market conditions “warranting careful monitoring” was an interesting omission from the final paragraph of August’s RBA Board Minutes. Since April 2017, the RBA had framed its neutral policy stance as a “watching brief” over risks in the labour and housing markets – with “uncertainty” on the labour
From Phil Lowe overnight: Good evening. On behalf of the Reserve Bank Board I would like to warmly welcome you all to this community dinner. Thank you for your interest in the RBA and for joining us this evening. As you are probably aware the Reserve Bank Board had its monthly meeting here in Brisbane
From Bill Evans at Westpac: As expected, the Reserve Bank Board decided to leave the cash rate unchanged at 1.50%. The Governor’s statement indicates that the Bank is feeling a little more comfortable with the outlook. Growth prospects have improved and the heat seems to be coming out of the housing market. Evidence to support
Here’s the statement by governor Phil Lowe: At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent. Conditions in the global economy are continuing to improve. Labour markets have tightened further and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the
Via Melbourne Institute: MI headline inflation gauge, August: +0.1%mom, +2.6%yoy. Last, July: +0.1%mom, +2.7%yoy. MI trimmed mean inflation gauge, August: +0.1%mom, +2.5%yoy. Last, July: +0.1%mom, +2.3%yoy. Components: the largest contributors were private motoring (+1.0%mom), new dwellings (+0.4%) and recreation, sport & culture (+1.1%mom). These were partially offset by falls in holiday travel (-2.7%mom) and fruit
Via Macquarie: The party is almost over Past tailwinds to turn to future headwinds The major’s ability to reprice mortgages has provided a significant backdrop to their earnings growth over the past decade. However, as we approach the end of the current repricing cycle we expect banks will need to focus on other avenues to
From the shadow: Economic Outlook Improves But Rates Should Stay on Hold Solid employment figures, growing business confidence, and a brightening of the global economy suggest a slightly improved outlook for the Australian economy. The RBA Shadow Board continues to advocate a hold-and-wait policy. It attaches a 61% probability that this is the appropriate setting.
Via the AFR: Heritage Bank, the nation’s second largest mutual, will stop offering property investment loans and is restructuring other products amid fears it will blow tough regulatory speed limits on lending growth after recent attractive offers attracted a deluge of borrowers. It follows the decision of CUA, the nation’s largest mutual, to stop writing new loans for property
Via Banking Day: Macro-prudential policy in New Zealand will be relied on for a while yet as it is “valuable in addressing financial stability risks”, Graeme Wheeler, governor of the Reserve Bank of New Zealand, said yesterday. In a long reflection on his five year term as a central bank chief, Wheeler positioned the less
Macroprudential 2.0 is still in the swing as the nation’s largest zero-interest bank struggles get under the 30% cap, via AFR: Westpac Banking Group will today introduce a new range of policies intended to tighten lending by increasing scrutiny of borrowers’ income, the second policy change in a week after revealing its exposure to higher-risk
Via News: TAXPAYERS have been slugged a $166,000 booze bill over the last three years racked up by bankers at the Reserve Bank of Australia — the organisation in charge of the country’s fiscal responsibility. They quaffed two dozen bottles of 2012 Penfolds Bin 389 cabernet shiraz — valued at $75 each — and bought
From senior economist at CBA, Gareth Aird. Output growth in Australia has been soft over the past year. The latest national accounts put real GDP growth at just 1.7% over the year to QI 2017. But over that same period, total income growth has been incredibly strong. Nominal GDP, the broadest measure of national income,
Via Credit Suisse comes confirmation of what we’re seeing RMBS for household credit stress: ■ Mortgage & card past-due ratios and mortgage impaireds ratios rose in the latest quarter, with loss rates stable in mortgages but rising in cards. Whilst acknowledging seasonality, a slowing Western Australian economy, and residual impacts of Cyclone Debbie, mortgage past-due
Via Morgan Stanley: While Australian banks’ margin recovery is in the sweet spot in late 2017, today’s new data from WBC shows IOL switching could be playing out earlier than the market expects. This presents downside risk to margins in 2018. Interest only switching is rising: WBC has more IOL(~50% of Australian mortgages) than other
The Australian has the story to ruin household’s day: Peter Costello, chairman of the nation’s $130 billion Future Fund, has urged the Reserve Bank to lift interest rates now to avoid households’ taking on more debt, which he says is contributing to “massive imbalances” in the economy. The nation’s longest-serving treasurer also expressed concern that
Via Westpac: PulseAugust2017 ― Getting a precise fix on Australia’s housing markets remains tricky. Sentiment and lead indicators continue to point to a material slowdown and turnover is showing a renewed decline. However the picture around price growth is much less clear cut, with some moderation overall but trends varying greatly across capital cities –
Via Paul Dales at Capital Economics: We suspect that history will be turned on its head over the next decade or so with Australia and New Zealand experiencing lower inflation rates than some of their peers. It follows that their exchange rates are likely to be weaker than otherwise and that their government bond yields
From the happy idiots: Domestic Economic Conditions Members commenced their discussion of the domestic economy by noting that the June quarter inflation data had been in line with the Bank’s expectations and provided further confirmation that inflation had increased since 2016. Underlying inflation was ½ per cent in the June quarter and headline inflation was only
From the always excellent Vimal Gor today: Markets came into July braced for higher volatility, led by global yields. Despite sell-off attempts in both US Treasuries and German Bunds, yields ended the month significantly off their recent highs. Adding to this were positive data releases from the US, Europe and China, all absent of any
by Chris Becker Money laundering scandal? What money laundering scandal? The biggest division of Megabank, the former government owned division, just posted its eighth record high profit, slightly beating expectations. More from Bloomberg: Cash profit, which excludes one-time items, rose 4.6 percent to A$9.88 billion ($7.8 billion) in the 12 months ended June 30 from
By Gareth Aird, Senior Economist at CBA: Key Points: The RBA has shaved a little from their near-term growth forecasts while medium-term projections are broadly unchanged. Headline inflation forecasts have been nudged up while core inflation forecasts have been left unchanged. The RBA have a shallow downward trajectory for the unemployment rate that glides to
by Chris Becker So the RBA holds fire and issues the usual – “she’ll be right mate” – statement. The Aussie dollar had ramped up a little going into the meeting yesterday, but sold off slightly and held below 80 cents against USD overnight as The City and other traders absorbed the statement and the