Australian interest rates

Via Damien Boey at Credit Suisse: Against the odds, the LNP has won the Australian Federal election.

The short answer is no.

Terry McCrann that is: The Reserve Bank will cut its official interest rate from its already record low of 1.5 per cent to 1.25 per cent at its next meeting Tuesday fortnight.

Via Damien Boey at Credit Suisse: The slowing in growth of aggregate hours worked is very consistent with what leading indicators have been telling us for some time. Our proprietary labour market leading indicator has historically been a reliable predictor of trend growth in hours worked since 2000 (please see our recent article for details).

Let me run you through some charts from the NAB business survey to make the point.

The headline numbers are poor for the NAB business survey: Most significantly, the employment index is now low enough for higher unemployment.

Via Bill Evans at Westpac: The Reserve Bank’s May Statement on Monetary Policy (SMP) shows substantial reductions in the growth and inflation forecasts. GDP growth (to one decimal point) is now forecast at 2.6% for 2019 and 2.7% for 2020.

Chris Joye on Aussie QE: Because most of our borrowers pay “variable” as opposed to “fixed” rates of interest, the cost of borrowing in Australia prices off short-term (variable) rather than long-term (fixed) interest rate benchmarks.

Via the SoMP: Domestic growth has been revised lower for 2019 Over 2018, Australian GDP growth was weaker than previously anticipated (Table 5.1).

Excerpted from Brett Gillespie at Ellerston Capital: For my regular readers, this month’s note is a little different. Briefer with one myopic focus. This month I am going to focus on Australia, and specifically the Reserve Bank of Australia (RBA).

Yes, this is what monetary policy has come to, via George Theranou at UBS: The RBA seems to be shifting from inflation targeting towards the labour market as the key policy driver.

Via AFR: Former Reserve Bank of New Zealand governor and architect of its inflation target band Don Brash has cautiously come out in favour of Australia reviewing its inflation target due to persistently lower levels of inflation.

Weeoo, weeoo, weeoo.

It started so innocently with a little piece from Patrick Commins: The RBA still has the potential to cut rates further, but by this stage that just looks like a case of indulging in “the hair of the dog that bit you”.

Let’s invite a reverse takeover of the RBA by the RBNZ which just cut its cash rate to 1.5bps: The Official Cash Rate (OCR) has been reduced to 1.5 percent.

Bravo Professor Ross Garnaut, published with permission from author: Productivity growth has been dismally low in the 21st century.

If you can be bothered, there’s oodles of amateurish commentary around on the RBA today.

From the RBA just now: At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

If you think it matters to the RBA at this late juncture, retail sales were OK but in March at 0.3% but volumes were not for the first quarter: MARCH KEY POINTS CURRENT PRICES  The trend estimate rose 0.3% in March 2019.

It’s almost turned dovish: Shadow Board Sees Downside Risks to Australian Economy Increasing but Interest Rates Should Remain Steady Significantly, Australia’s inflation rate has fallen to 1.3% in the March quarter, putting it well below the Reserve Bank of Australia’s official target band of 2-3% and thus confirming economists’ concerns of a weakening economy.

As markets adjust to new trade deal risk, Aussie bond yields have gapped to new all-time lows this morning: The short end has now fully priced one rate cut.