By Leith van Onselen For the second week in a row, HSBC’s chief economist, Paul Bloxham, has published an article in the AFR weighing-in against macro-prudential curbs on higher risk mortgage lending: The recent adoption of [macro-prudential tools] in New Zealand will no doubt be of interest to Australian authorities, given the similarities between institutions
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.
By Leith van Onselen The Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) could not be more different. The RBA’s speeches and commentary often feel like they have come directly out of a bank’s economics/marketing department, aimed squarely at appeasing foreign bond investors, rather than telling it as it is.
As the housing debate heats up, Bloxo weighs in against macroprudential policy: Paul Bloxham, who is the chief economist at HSBC in Australia, said the limits on bank lending being introduced in New Zealand would not work. Mr Bloxham made his comments after Australia’s banks were this week warned against taking on risky loans in
Through this year a coterie of glass-half full economists has been calling the bottom of the interest rate cycle. They’ve been wrong of course and throughout interest rates markets have clearly signaled as much, never quite giving in to the bulls. Below is the 12 month interest rate forecast from Credit Suisse: On a couple
When will the counter-contrarian Pascometer ever fail us? Today it burns bright red on more rate cuts: The Reserve Bank aviary appears to house neither monetary hawks or doves – just penguins sitting pat despite today’s weak retail sales, focusing instead on the present low interest rates doing their stuff in the housing market and
Chris Joye appears at AFR the afternoon with advice for the RBA: For the avoidance of doubt, the central bank’s easing bias remains intact, although another cut is not imminent and remains data dependent. The RBA is pleased to see better global data and likely believes recent Chinese indicators put paid to the notion that
The RBA is out with its determination for September and it’s no move. Here’s the statement: At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent. Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices
While Tony Abbott is busy embracing the Swan/Gillard “it’s all good” economic narrative, the Reserve Bank has taken its jawboning campaign to New York via the WSJ: The Australian dollar is still too high and remains a brake on economic growth, but it is likely to fall further in coming months, a Reserve Bank of
Westpac is out with a new expectations note, this time about interest rates: The Feb, Jun and Aug Westpac-Melbourne Institute Consumer surveys include an extra question about expectations for mortgage rates over the next 12 months. The Aug survey showed more consumers expect rates to rise or be unchanged than to fall. The results show
Cross-posted From Henry Thornton. Try saying that after a hearty meal finished off with a beaker of brandy. We learn about this new-old concept courtesy of Peter Wells in the AFR, who has been reading Tweets from Bill Goss, bond trader extraordinary, and talking to at least one of the Aitken Brothers. ZRIRP stands for Zero
From BS: Westpac Banking Corporation will exceed the Reserve Bank of Australia’s 25 basis points cash rate cut, dropping home loan rates by 28 basis points. The move lowers its headline standard variable mortgage rate cut to 5.98 per cent, effective August 19. National Australia Bank Ltd, Commonwealth Bank, ING Direct, Bank of Queensland and
First, Paul Bloxham at HSBC: The RBA cut its cash rate by 25bp to 2.50%, as expected. However, the statement was less dovish than previous ones, as it did not explicitly indicate that the inflation outlook provided ‘scope’ for further easing from here, as previous statements had done. They did, however, still suggest that the
The RBA has cut 25bps, confirming again the usefulness of the Pascometer. Here’s the statement: At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.5 per cent, effective 7 August 2013. Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a
It’s getting interesting. With today’s RBA meet, Warwick McKibbin is warning again of the distortions resulting from low interest rates: “Trying to raise demand from cutting interest rates does not induce investment, especially when weak confidence driven by political incoherence is a driving force in the current Australian economy,” Professor McKibbin said. …A group of
NAB has plumbed a new level in dour today: Throughout this year we have been pointing to the ongoing sources of weak domestic demand as the economy faces a downturn in mining investment. Until yesterday the RBA had been expressing optimism about other drivers of growth picking up. Yesterday Glenn Stevens provided a much more
From the AFR, Glenn Stevens in the Q&A for today’s speech: [Stevens] repeated that comment in response to questions after the speech, but added that he did not expect interest rates to go close to zero, as they have in Europe and the US. This has raised the problem of the so-called “lower bound” where
From Paul Bloxham at HSBC: Today’s speech by the Governor noted that the recent Q2 inflation data were low enough to leave the RBA with further scope to ease policy. The speech was fairly downbeat, noting that mining investment had now peaked and that the ‘rotation’ of demand away from mining had been only gradual,
Find below Capt’ Glenn Stevens’s latest speech this afternoon. It’s another good effort correctly describing Australia’s two booms over the past few business cycles and warning that there will not, nor should not, be any return to former levels of consumption to boost growth. It is also makes clear that more cuts are in the
Is there hope of a breakout of policy innovation at our central bank? The AFR‘s Alan Mitchell is widely regarded as one of the Bank’s chosen policy mouthpieces and today moots the notion that the RBA will follow Canada and New Zealand in installing new macroprudential tools: …The Reserve Bank could find itself having to
The strobe on the Pascometer is flashing again. Yesterday afternoon a parade of Australia’s best commentators joined the call for an August rate cut. But the most convincing signal for a cut was the Pascometer‘s counter-contrarian position that the RBA will hold with gusto: I’ve previously already argued the subtle mix of “on one hand,
Everyone is waiting for today’s CPI number as the pivot for whether or not the RBA will cut interest rates again in August. It’s only natural but it’s wrong. Economic data has clearly weakened since the June meeting with unemployment jumping to 5.7% and proximate indicators staying soft, the NAB survey hit four year lows,
For all you MSM optimists out there, I suggest a strong dose of David Bassanese at the AFR today. After a flirtation with bullish housing forecasts earlier this year, Bassanese is now leading the MSM interest rate debate by following MB. He notes today the key change in this week’s RBA minutes: …In the July
Humour giveth and humour taketh away: ANZ RATE VIEW: REVERTING TO PREVIOUS FORECAST. NEXT RATE CUT NOT UNTIL LATER IN 2013 Yesterday’s off-the-cuff humour by the Reserve Bank Governor played an important role in our change of view about the probability of an August easing of monetary policy by the Bank. Following confirmation that this