From Jens Meyer:
Did the RBA just signal the end of rate cuts and no-one noticed?
Well, not exactly no-one. Goldman Sachs chief economist Tim Toohey reckons the speech RBA assistant governor Chris Kent delivered on Tuesday amounts to an explicit shift to a neutral policy stance.
Dr Kent spoke about how the economy has been doing since the mining boom, and in particular how its performance matched the RBA’s expectations.
Reflecting on the RBA’s forecasts of recent years, Dr Kent essentially framed the RBA’s earlier rate cut logic around an initial larger than expected decline in mining capital expenditure and subsequent larger than expected decline in the terms of trade, Mr Toohey said.
Having so closely linked the RBA’s easing cycle to the weakness in the terms of trade (and earlier decline in mining investment), Dr Kent’s key remark was to flag “the abatement of those two substantial headwinds” and highlight that this “would be a marked change from recent years”….
Source: Did the RBA just signal the end of rate cuts and no-one noticed?
Yes … the end of rate cuts… come what may = ( ‘marked change from recent years’), in my view ; that’s what the RBA is indeed flagging.
Independent of your listed supports for an end to Australian rate cuts, the global weight of arguments from many very influential academics and portfolio managers disputing any real economic benefits of ‘too low for too long rates / negative real and nominal rates’ is really reaching tipping point now. The RBA may be hereby indicating their associated support.
We may also see the ‘marked change from recent years’ to imply that the RBA is signalling to the government that fiscal policy has to take up much more significance in the stimulation of economic growth.
There is no precedent for super-low or negative interest rates. Implementation would be like surgeons experimenting on a live patient. Something they would only do if convinced the patient was going to die unless they act. IOW a sign of desperation.
Come to think of it. Economists also should be forced to take the Hippocratic oath: “First do no harm…..”
I have always found it strange that the elected government of the day doesn’t impose interest rate per sector. In this way they can stimulate the economy where they feel it’s needed. The RBA can set the base rate but the Government sets the sector rates based on the new base rate. We have elected Governments, whether you believe in the free capitalist system or not. Surely they have the elected responsibility to ‘manipulate’ those sectors which they deem need stimulating to bring the economy back into balance. The ‘one interest rate’ hammer seems so 1950’s.
That may work if everyone was honest about which sector was borrowing money. Investment banks would have a field day providing “sector-transformation” for clients.
Example: Years ago South Africa had two prices for diesel: the regular price for commercial use and a much lower price for agricultural use. I came across a router (he buys fuel from refineries in the wholesale market and on-sells to large customers like bus/trucking fleets) as rich as Croesus. He had two businesses. The second was a small farm that bought massive volumes of diesel at the subsidized rate. This was obviously being “re-cycled” and on-sold to bus and truck fleets. The fleet-owners were happy to buy diesel at 10 cents below the going commercial rate (no questions asked). The government inspector was probably happy with his new Mercedes/BMW (Wall Street call it ‘regulatory capture’). And our friend was happy pocketing the extra 10 to 20 cents a liter on the vast river of diesel that was flowing through his little farm. The only loser was the taxpayer.