A few thoughts on small changes to various facilities but basically steady as she goes for the RBA superdove: At its meeting today, the Board decided to maintain the current policy settings, including the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond, as well as the
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.
There’s revolution brewing at the ABC. A fightback against the fake left editorial viewpoint that played a major role in destroying Australian worker’s living standards in the last cycle via its defence of unbridled immigration. In the last few months, ABC’s Ian Verrender has led on the issue. Now Gareth Hutchence has joined in: Morrison
In Australia, it just doesn’t do to tell the truth about our ruling classes. Take, for instance, Wayne Byers, chairman of the Australian Prudential Regulatory Authority. As the Hayne Royal Commission exposed banking disgrace after crime in 2019, it became abundantly clear that APRA had completely failed under Byers over the previous cycle. Yet what
As usual, the accelerated COVID business cycle that we have dubbed the Amphetamine Cycle, is moving at a lightening pace. Previously, I’ve described the contest of market narratives as good news is good news, good news is bad news and bad news is good news. Q1 was defined by good news is good news with
Capital Economic on the minutes: The minutes of the latest RBA meeting emphasised that the economic recovery has further to run before the RBA will be satisfied which supports our view that the Bank will announce another extension to its QE programme in June. The minutes acknowledged that the economic data over the past month
TS Lombard with the note: In a recent podcast, the influential MMTer Stephanie Kelton claimed victory in the debate about fiscal policy, suggesting the US Congress was now taking her advice. Other commentators also sense a “regime shift” in macro policy, claiming we have reached the end of the Neoliberal era. While these declarations are
And the world turns! The AFR is now demanding low and middle-income tax cuts to lift demand: We can’t rely on monetary policy forever. The RBA needs to rebuild its ammunition. Fiscal must expand to help the RBA. Tax cuts for income-earners up to $120k can help. A sure way to increase wages. I agree.
Here’s what the RBA said at its last meeting: The Board remains committed to the 3-year government bond yield target of 10 basis points. Later in the year it will consider whether to retain the April 2024 bond as the target bond or to shift to the next maturity. The initial $100 billion government bond
Nordea with the note: There was broad support for the ECB to increase the pace of its bond purchases, but that support may wane, as the economic situation improves. We continue to see moderately higher Euro-area bond yields ahead. The monetary policy account from the ECB’s March meeting indicated that there were no strong objections to the central
Markets clearly think it’s coming very fast. Fed fund futures are pricing two cash rate hikes for 2022, let alone tapering of asset purchases, which will have to come first: That is far too aggressive to my mind. US inflation is going to fall away next year as commodities deflate while China slows, even if
God bless COVID-19. After years of battling a kind of corporate wokism that was designed to destroy Australian wages via immigration (cheered on by an idiot fake left) the reality of life without mass immigration is forcing everybody to shift. Saul Eslake was certainly far from the worst on these topics over the years, mostly
If you ask Goldman Sachs then rising yields will never hurt equities. If you ask BofA then it is soon. If you ask me then it’s neither as inflation peters out first. The excellent Matt King at Citi now adds his two-bob’s worth: Consensus explains the yield backup in terms of rising nominal growth and
For years we have been pounding away at the need for a comprehensive review of the structure of Australian monetary policy. It’s been obvious since the end of the commodity boom in 2011 that it was needed. As the rest of the world embarked on brave experiments in monetary policy – everything from macroprudential tools
The RBA yesterday gave a quiet warning on house prices when it noted that it said it “will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.” It does not take Einstein to see where that ends up eventually. There’ll be a wave of macroprudential tightening to blow
No change to the uber-dovish RBA: At its meeting today, the Board decided to maintain the current policy settings, including the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program. The
As we know, the Australian Prudential Regulator, APRA, is corrupt. Its head, Wayne Byers, was re-appointed by Treasurer Frydenberg in the midst of the Hayne Royal Commission before it could bring down its findings on anything. A clear ‘jobs of the boys’ moment rendered appalling as the Hayne RC made clear how badly APRA had
Alan Kohler has published a detailed article at The ABC decrying the impact that record low deposit rates is having on retirees, claiming that “retirees are collateral damage” in the Reserve Bank of Australia’s (RBA) war against low inflation: I think retirees are mostly just collateral damage in the war against low inflation. They happen
Former RBA board member John Edwards is on the hustings today going brrrrrrr… Edwards sees AUD at 80 cents. The RBA will keep printing so long as the AUD is high enough to constrain the recovery (which, in my view, is anything above 60 cents). Fiscal will be severely contractionary from here, down 8% of
Bill Evans at Westpac: Westpac has revised up its profile for the RBA’s Quantitative Easing Program. We now expect the new program which starts in April to be followed by a further $100 billion (up from our earlier forecast of $50 billion). On December 14 last year we surprised markets by forecasting that once the
The AFR is today reporting that house price controls are imminent from regulators: Apparently “pressure” is building on the RBA to slow house prices though from where that pressure is coming the article does not say (because let’s face it, there isn’t any). RBC says the RBA is readying macroprudential tools. These will include limits
It is fascinating to watch macro analysts diverge into three distinct narratives covering the future of this business cycle. Conveniently for us, the three narratives are represented to three investment banks’ views. The first we might describe as “good news is bad news”. It’s captured by Bank of America which sees overwhelming US fiscal support
The Australian dollar took off last night after the FOMC meeting concluded with a dovish statement. Yet, under the bonnet, the Fed did shift to a more hawkish outlook and the long-end of the bond curve barely shrugged as yields marched higher. In short, the meeting delivered exactly what I expected, a passive shift in
Will the Fed panic this week? Panic tightening or panic easing? Neither in my view. It just needs to stay the course. Barclays thinks it will be dovish: A number of factors are likely to lead the Fed to considerably improve its outlook for the US economy in March. These include: Progress on vaccinations, case
Mizuho Chief Market Economist Yasunari Ueno: The chief duty of most central banks around the world is the maintenance of price stability. Some countries—including the USA, Australia, and New Zealand—have a dual mandate of price stability and maximum employment. Even in those cases, however, the central bank’s role is to maximize employment within the overriding