The theme de jour is leadership ineptitude. Follow Christopher Kent’s dreadful speech and Joe Hockey’s appalling cheer-leading comes the RBA minutes which have ramped concern about property but haven’t ramped thoughts about macroprudential leading markets to bid up the dollar 20 pips: International Economic Conditions Members began their discussion by noting that the pace of
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.
The RBA deputy governor Christopher Kent continues the central bank’s unfortunate obsession with the confidence fairy today with a deep interrogation of the poor girl: I’d like to thank Bloomberg for the opportunity to talk to you today. I discussed this topic at this same venue 18 months ago. The outlook for non-mining business investment
From Professor Ross Garnaut over the weekend: “We needed a lower real exchange rate 18 months ago,” Professor Garnaut said. “There may be excessive price inflation in housing, and if that is the case it is very important that we deal with that problem with specific measures rather than running our whole monetary policy to
From Professor Warwick McKibbin at the AFR today : Per capita income growth has stalled over the year. This has direct implications for the budget with revenue importantly affected by weak nominal GDP growth. Second, with a stalling in income growth real demand may slow in coming quarters, which will impact on GDP growth over time…Some argue
Somebody shoot me. From John Edwards of the RBA: “House prices can’t increase indefinitely,” Mr Edwards said. “And people purchasing houses today on the expectation that they are going to increase indefinitely will be disappointed and possibly financially embarrassed by the outcome. …“If we thought the [housing] problem was sufficiently permanent and critical for us, we could
Why does Captain Glenn say one thing and do another? His speech today mostly makes sense and it’s good to see some pressure applied to governments to free up housing supply, yet the bubble keeps on growing… Glenn Stevens Governor Address to CEDA Luncheon Adelaide – 3 September 2014 Thank you for the invitation to visit Adelaide.
As expected the Reserve Bank Board decided to leave the cash rate unchanged at 2.50%. In the Governor’s statement he retained the key sentence “on present indications, the most prudent course is likely to be a period of stability in interest rates”. Surprisingly they changed the wording around the Australian dollar although the sentiment remains
No surprises: At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent. Growth in the global economy is continuing at a moderate pace. China’s growth remains generally in line with policymakers’ objectives, with weakening property markets a challenge in the near term. Commodity prices in historical terms remain
Tomorrow is the RBA’s September meet where the chances of either rate cut or rise are zero, even if the RBA shadow board want to be a little more circumspect about it: The picture of the Australian economy painted by the latest data is murky. The housing market and indicators of sentiment are strengthening but
From the Eternal Sunshine of the Spotless Mind today: Australia’s great rebalancing act is underway, but its pace has been slow, largely because of the persistently high AUD. As expected, mining investment is falling sharply and, although resources exports are ramping up, the mining sector is contributing less to growth than it had been in previous
Courtesy of Forexlive: AMP Q1 2015 ANZ Q2 2015 BankAm-ML Q1 2016 Barclays Q1 2015 BNP-Paribas 2016 CBA Q1 2015 Citigroup Q2 2015 Deutsche Bank not before 2016 Goldman Sachs November 2015 HSBC H1 2015 JP Morgan Q3 2015 Macquarie Q1 2016 Moody’s Late Q1 2015 NAB late 2015 Nomura H1 2015 RBC Capital Q4
From Tim Toohey: Economy evolves as we expected, but RBA indicates a reluctance to ease In late 2013 we outlined our rationale for why the RBA cash rate would be lowered one final time in 2014. Our expectations of a sharp fall in commodity prices, a disappointing recovery in non-mining activity, the resumption of fiscal consolidation, the commencement
Given Michael Pascoe’s kindergarten economics is now running the central bank, it is only fair that we give him plenty of space today to expand upon the doctrine at the centre of RBA thinking: Maybe RBA deputy governor, Phil Lowe, had that among the material at the back of his considerable mind when he made
Captain Glenn Stevens appeared in Parliament this morning for his biannual testimony in which he pinned all of our hopes and dreams upon the nebulous notion that business lacks confidence: Since the hearing in March, the global economy has continued its expansion at a moderate pace, and Australia’s trading partner group has been growing at about its
Dovish minutes just out from the RBA (see last paragraph with lot’s of doubts creeping in): International Economic Conditions Members began their discussion by noting that growth in Australia’s major trading partners was expected to be a bit above its long-run average pace in both 2014 and 2015, even though growth appeared to have eased
Tim Toohey on the SoMP: The August Statement of Monetary Policy was an interesting mix of significant shifts in the RBA growth and inflation forecasts and more incremental shifts in the tone of the accompanying text. Our approach has historically been that the RBA’s real intent in the Statement of Monetary Policy is signaled by its forecast
For tomorrow’s RBA Statement on Monetary Policy, MOragn Stanley foresees: The key event this week… is Friday’s Statement on Monetary Policy, outlining the staff’s assessment of growth and inflation outlook. More importantly, the Bank is assessing the impact of an AUD decoupling from weaker terms of trade, and macro-stability concerns on the rise in investment
Another day, another straw, another broken back. Yesterday’s attack on Standard and Poors by former assistant governor at the RBA Stephen Grenville has led me to wonder just how deep are the problems at the central bank. To recap he argued: Just in case you’re getting lulled into complacency, S&P concludes with some warnings and a