Australian interest rates

There have been times when Chris Joye has made good sense.

Via the excellent George Theranou at UBS: Based on our proprietary survey, our Q3 headline CPI forecast is unrevised at 0.4% q/q, slowing from Q2’s bounce to 0.6% (driven by petrol). This is partly due to retracement of fuel (-2.3%, -0.07%pts); while the UBS Evidence Lab Grocery Tracker has food up 0.7%.

Via the AFR: Shayne Elliott, the chief executive of one of the country’s biggest banks, has called on federal Treasurer Josh Frydenberg to convene a summit to discuss the broader economic implications of zero per cent interest rates and quantitative easing.

First up, monetary curmudgeon and former RBA boffin, Stephen Grenville: So why would it be a bad idea for the Reserve Bank to undertake QE?

From a new report by The BIS’s Committee on the Global Financial System which Phil Lowe chairs: Executive summary Central banks expanded their balance sheets on an unprecedented scale in response to the global financial crisis (GFC) and its aftermath.

Via Moody’s: Next Recession May Lower 10-year Treasury Yield to Range of 0.5% to 1% Despite today’s ultra-low yields, Treasury bonds may still pay off handsomely once recession strikes.

Via Bill Evans: As expected the RBA Board lowered the cash rate by 25 basis points at its October meeting to 0.75%.

Apology withdrawn, Wayno, via Banking Day: Under the new structure, each of APRA’s six operating divisions will be led by an executive director, as announced yesterday by APRA chair Wayne Byres.

So says The Australian: Small business lending rates have barely fallen and those for credit cards have increased in the wake of three cuts in the official interest rate by the Reserve Bank to help spur economic growth.

Via The Australian comes the Gottiboff nightmare: In Sydney, the wealth management arm of global investment bank Citi reports a 50 per cent lift in “funds flow” out of Hong Kong and into Australia.

Aussie bonds are bid once more with a range of record low yields today, mostly at the short end and in the belly of the curve: The short end has begun pricing another rate cut and the curve is still inverted out the six year.

Bring on the QE.

Via Goldman’s Andrew Boak who says that the RBA’s automated macro model, MARTIN (formerly known as a “ruler”), suggests that: “Most strikingly, the model suggests the RBA would need to implement a minus 1 per cent cash rate if it wants to achieve its unemployment and inflation goals over its 2-3 year forecast horizon.

Via Damien Boey at Credit Suisse: We model the slope of the real yield curve – the spread between 10-year inflation-indexed bond yields, and real 3-month interbank rates.

At Domain: NAB followed CBA by saying it would cut rates for owner-occupiers and investors paying principal and interest by 0.15 percentage points.

Via Bill Evans: As expected the RBA Board lowered the cash rate by 25 basis points at its October meeting to 0.75%. Westpac acknowledges that result given that we were the first forecaster to call the RBA cash rate below 1% (Bloomberg survey – May 24).

It’s all aboard the specufestor train now: In a move that is likely to influence other banks’ pricing, CBA on Tuesday said it would lower rates by 0.13 percentage points for all owner-occupiers and for property investors who are paying principal and interest on their loans.

Via the RBA just now: At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.75 per cent.

Via Bill Evans at Westpac just now: We expect the RBA to cut the cash rate by 25 basis points to be announced at 230 today. We will be very pleased with that result given that we were the first forecaster to pick RBA cash rate below 1% (Bloomberg survey – May 24).

Via the Melbourne Institute: month on month inflation at 0.1% in August; year on year at 1.5% Trimmed mean did a little better up 0.2 to 1.6% but there is no mistaking the lowflation here.

The broken record screeches again: Australia’s inflation rate, at 1.6% (June quarter), remains well below the Reserve Bank of Australia’s official target range of 2-3%.

Via Damien Boey at Credit Suisse today: Overnight, RBA Governor Lowe gave the strongest indication yet that the Bank is likely to cut rates when it next meets in early October.

Via Bloomie: European Central Bank President Mario Draghi said the Governing Council should be open to ideas such as Modern Monetary Theory, while noting they’re closer to fiscal policy and should be directed by governments.