Over the weekend, Chris Joye responded to Terry McCrann’s impolitic attack of late last week and, in fairness, here it is from the AFR: Terry McCrann of the Herald Sun…had a panic attack when I questioned the hand that had fed him for so long. McCrann was once known as the “shadow governor” for reliably getting
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.
I missed this yesterday, the cause of macroprudential took another serious blow after it was backed by the Pascometer: …if the strong dollar is restraining economic growth, it becomes much harder for the RBA to lift rates if they only reason is the perception that housing prices are rising too far, too fast. Which in
Fresh from our Bill: The most significant change in the minutes of the April Board meeting is around a higher degree of concern about the Australian dollar. Whereas in the March minutes the Board noted that “the decline in the exchange rate seen to date would assist in achieving balanced growth in the economy” this
The RBA minutes are out and were much of muchness with a little more emphasis on the dollar (highlighted). The shift of emphasis was enough to suppress the dollar 30 pips presumably as fears of a return of the jawbone above 94 cents were reignited. International Economic Conditions Recent indicators for the global economy suggested
From Bloxo today it’s unsurprisingly all rebalancing and rate hikes: The Australian unemployment rate fell to 5.8% in March (market had 6.1%) to be at its lowest level since November last year. Employment rose by a solid +18k jobs in the month (market had +2k jobs) and the participation rate declined to 64.7%. The main
The IMF again underlines just how slow our local regulators have been to understand their new normal with a new staff note endorsing various unconventional policy tools today: The global financial crisis challenged the existing monetary policy paradigm. Before the crisis, dangerous financial imbalances grew under stable output gaps and low inflation. After the bust,
Another day, another change of direction from the RBA governor. After treating us all to brutal dollar jawboning a few months ago, we switched to hands off the currency. In Hong Kong last week it was boom time for recovery but today it’s struggling green shoots. I’ve lost count of how many times the Governor
It’s not yet hysteria, but there’s definitely an edge creeping into the national discussion surrounding interest rates. The latest to lean against the RBA is “business”, or so described by locked-BS, via a number of lobby groups: …Housing Industry Association senior economist Shane Garrett says it is extremely important that low interest rates are maintained,
Fresh from the RBA: At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent. Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a pick-up this year. The United States economy, while affected by adverse weather, continues its expansion and
From BofAML: It remains our view that the RBA will potentially need to ease rates further in the second half of the year. This is based on the still many challenges the economy must face over 2014 and the years following. Despite recent encouraging data flow in some sectors we think it is premature to forecast rate rises this
In late 2008, amid global housing busts and economic wreckage, the governor of the Reserve Bank of Australia (RBA), Glenn Stevens, said in a speech to Australian economists: I don’t know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful
Feathers are flying, beaks shredding, horns gorging and hooves thundering as the bullhawkian flerd swoops in today. At its head is the Kouk, resplendent plumage swept back in a crash dive, bill yawning in shrieking triumph: In May no less, having missed his first quarter prey. I’ll note, if you can hear me above the din,
Not that it matters any more given the Glenn Greenspan boom and bust agenda, but the RBNZ has made the following point. Via Banking Day: The Reserve Bank of New Zealand has estimated its ‘speed limit’ on low deposit mortgages in October reduced inflation pressures by an amount similar to the impact of a 25
The AFR has some Kouky reading from Kieran Davies, chief economist at Barclays Bank Australia: “The RBA now seems less comfortable. That said, the governor still seems sceptical of macro-prudential policy, suggesting that ‘prolonged use’ of prudential tools indicates that interest rates are too low…The Sydney housing market is the canary in the coalmine for
I’ve had my Bill Evans moment. Two things have changed. First, there’s not going to be any macroprudential policy in Australia. House prices are going to go higher, cheered along by the central bank, which is not going to be able to raise rates with the capex cliff and rocketing dollar until it’s too late. That
From Tim Toohey at Goldman Sachs: Today’s speech reinforced that the RBA has set quite a high hurdle for further policy easing, suggesting that the RBA cannot be expected to “fine tune” the recovery, particularly in regard to non-mining investment. Governor Stevens’ effort to downplay the stronger 4Q2013 CPI, inflation pressures more broadly and the
From locked-BS comes sense from Callam Pickering The RBA minutes, released yesterday, suggest that macroprudential policies are gaining traction among senior officials and members of the board. At its March meeting, members discussed the experience of other countries that have utilised macroprudential policies and their possible application for Australia. …A recent Freedom of Information request
From Bill Evans: The minutes of the March meeting of the Reserve Bank Board contain no real surprises. It was noted in the Govenor’s statement which was released straight after the March 4 meeting that the Australian dollar remained high by historical standards. That was a change from the February statement which excluded any assessment
The RBA minutes are out. find below with highlights. International Economic Conditions Growth of Australia’s trading partners in late 2013 was close to its average pace of the past decade. Inflation in the major economies remained low. The Board noted that recent data suggested that the US economy may have slowed a little from the
From the SMH: Westpac was not the only bank factoring in more rate cuts. National Australia Bank and Bank of America-Merrill Lynch are both among those that think the RBA has more to do and NAB chief economist Alan Oster was standing by his call on Monday. Bank of America-Merrill Lynch chief economist Saul Eslake
Callam Pickering at locked-BS today adds hit take to yesterday’s RBA myth-making about GFC-preparedness: …in part the high interest rates — or at least the last few moves in 2007 and 2008 — were evidence of the RBA failing to recognise the size and scope of the impending financial crisis prior to the collapse of
From the Kouk today, who has slaked the Bill Evans tonic to the max: Despite more bank economists rolling over and flipping their forecasts for interest rate cuts for interest rate hikes, financial markets are yet to price in those higher rates. Indeed, for the next few months, the futures market is still pricing in
Fresh from Westpac: Our dominant theme in this cycle has been that a weak labour market would undermine consumer spending which in turn constrains investment, employment and incomes. Businesses react negatively to soft demand; an uncertain global environment and a “still high” AUD. Those forces are expected to be complemented by a number of known
From the FT: Efforts by central banks to spur economic recovery by providing guidance on what will happen to interest rates could endanger the global financial system, economists at the Bank for International Settlements have warned. Investors are being encouraged to load up on risk because they believe forward guidance will warn them well in
Mr Michael Pascoe, well done: Reserve Bank governor Glenn Stevens brought (metaphorically) his hose to this morning’s House of Representatives economics committee hearing and proceeded to use it on every issue thrown at him in the first session – except for households’ housing debt. Stevens said household credit growth for housing of 5 or 6
Here’s what he said in the proxy Parliament of the Sydney Masonic Centre fronting the House Economics Committee. Madam Chair Members of the Committee Thank you for the opportunity to meet with you today. When we met with the Committee just prior to Christmas, I suggested that, taking an international view, 2013 could be described as