Tag: RBA

Posted on

Westpac: RBA Statement on Monetary Policy

It appears that the objective of this Statement is to emphasise that without a significant deterioration in global financial conditions policy should remain unchanged. When you assess the various pieces of the Bank’s description of the domestic economy – weak employment; rising unemployment rate; subdued retail spending; soft housing market; below trend growth outside mining; scaling back of public investment; building construction subdued; inflation to remain around the mid-point of the target range; policy at neutral, not stimulatory – we see a fairly clear case for policy to move into the stimulatory zone immediately. Of course our forecasts as contrasted with the Bank’s forecasts clearly suggest that the qualitative descriptions provided in this statement are understating the need for a policy response.

It has been and remains our view that a further 50bps in policy easing can be justified immediately although our forecast is that this adjustment is likely to occur over a three to four month period. We find the use of the requirement that demand conditions need to weaken materially before a rate cut can be delivered overly conservative and expect that the Bank’s policy will change more rapidly than we assess is their current intention.

Consequently at this stage we maintain our view that the next rate cut in this cycle can be expected in March to be followed by a move in May but recognise that we are currently dealing with a central bank that while acknowledging all the reasons policy needs to be stimulatory appears to have no immediate intention to move.

Bill Evans
Chief Economist

Posted on

Westpac Economic Update: RBA leaves rates unchanged

The Board of the Reserve Bank surprised us with a decision to hold the cash rate unchanged at 4.25%. Whilst this indicates that for the time being the Bank is assessing the risks somewhat differently to ourselves we are not inclined to change our core view that a further 50bps in easing can be expected over the course of the first half of this year.

Bill Evans
Chief Economist

Posted on

Heard on the Street: Australia’s Juggling Act – WSJ.com

Economists expect 2012 will see a slowdown in the economy of China, Australia’s biggest trading partner. China’s gross domestic product growth could slip to around 8% from more than 9% this year, which will lead to lower demand for commodities. Already, the Reserve Bank of Australia’s index of commodity prices—a weighted basket of Australia’s resource sector exports—has fallen sharply this year. The central bank says the economy’s resources-led surplus may have hit its peak and could decline “somewhat” from here.

via Heard on the Street: Australia’s Juggling Act – WSJ.com.

Posted on

The RBA gets hawkish on asset prices – macrobusiness.com.au

I believe that the RBA is determined to prevent any reinvigoration of the Australian housing bubble……. yesterday we had [] confirmation that the bank is structurally remodelling itself as an asset price hawk, with the appointment of Phil Lowe to the deputy governorship. In 2002, whilst working at the BIS [he] wrote a defining paper on the identification and targeting of asset prices….his history shows both the intelligence and fearlessness needed to be an effective senior governor. Bravo.

via The RBA gets hawkish on asset prices – macrobusiness.com.au | macrobusiness.com.au.

Posted on

Westpac: RBA cuts the overnight cash rate by 25bps

RBA cuts the overnight cash rate by 25bps – first rate cut since April 2009

As we predicted the Reserve Bank Board decided to lower the cash rate by 25bps to 4.5%…..

Undoubtedly the most important development in the Governor’s statement is his observation that “inflation is likely to be consistent with the 2-3 per cent target in 2012 and 2013.” …… The fact that there is now confidence that inflation will remain within the target band for an extended period allows the Bank to deal with the prospects of an economy which is only showing moderate growth.

via Bill Evans, Westpac Chief Economist

Posted on

CPI now moves balance of probabilities for next rate cut from December to November – Westpac

In the August Statement on Monetary Policy the Bank [RBA], relying on two recent prints of 0.9%qtr for underlying inflation, forecast that annual core inflation would print 3.25% in both 2011 and 2012. We are now confronted with the reality that annual core inflation for the year to September 2011 has printed 2.47% with a reasonable estimate that given the slowdown in the economy the fourth quarter will print around 0.5%qtr. That will allow the Bank to lower its inflation forecast for 2011 to 2½%yr with a similar outcome likely in 2012.

Given the Governor’s recent statement that an improving inflation environment allowed scope to ease policy it now seems almost certain that Westpac’s forecast which was made on July 15 — that we could expect a rate cut by the end of 2011 — will prove to be correct.

In fact given the Bank’s previous record of moving rates every November for the last five years and given that the case for a rate cut is indisputable the balance of probabilities has now moved to a November cut from our original call of December.

via Westpac Economics – first impressions

Posted on

Australia: How the CPI hid the housing bubble – On Line Opinion

We can combine the main areas where housing has been stricken from the CPI – the removal of mortgage costs, quality adjustments to rent, and reduction in weight to home ownership costs – to see what difference it would make had the pre-1998 methodology been continued. The resulting MacroStats cost-of-living index is plotted below against the headline CPI.

MacroStats Cost-of-living index

….We can again see how this measure tracks the official CPI very closely until 1998. Since 1998 it is 0.73 percentage points higher on average (or 3.8%), and in the period 2001-2008, it averaged 1.3 percentage points higher (or 4.4%pa). That gives you some idea of how significant the 1998 methodological shift in the CPI was in disguising housing inflation and creating a feedback loop with lower monetary policy.

via How the CPI hid the housing bubble – On Line Opinion – 20/10/2011.

We need to be wary of bodies like the RBA lobbying to change the composition of the CPI. Performance measurement has to be independent in order to be effective.

Posted on

The Platypus blues – macrobusiness.com.au

Ms Luci Ellis, RBA Head of the Financial Stability Department:

Indeed, credit booms are very often part of the story in the lead-up to a period of financial instability. We published that assessment in the March and September Reviews. In the wake of that, we have sometimes been asked: how fast is too fast? Do we have a target for credit growth? Or for the ratio of credit to GDP? Or, perhaps, for housing and other asset prices? I can tell you quite plainly that we do not have numerical targets for any of these things. A target for credit growth, or any of these other variables, is not analogous to the RBA’s inflation target……….The distinction is simply that price stability is about inflation. So it can be defined as keeping inflation at an acceptably low rate. Financial stability is harder to define, but in essence it is about avoiding episodes when the financial system significantly harms the real economy.

My interpretation of this series of statements is that a fundamental flaw is at the heart of the RBA’s view of financial stability management. The RBA has specific targets for inflation and that is the single price (including assets) stability tool but has no targets or model parameters to govern financial stability. A big mistake not just of policy but market knowledge

via The Platypus blues – macrobusiness.com.au | macrobusiness.com.au.

Alarm bells should ring if household debt starts growing at 8pc to 10pc a year.

Posted on

Westpac–ACCI Survey of Industrial Trends

The Westpac–ACCI Survey of Industrial Trends reports that:

• The fall in general business conditions is sharper than in 2008/09
• Labor demand softened and availability of labor increased appreciably
• Firms’ profit expectations slumped further — the weakest since 2009.

It concludes with the following statement:

This is a survey which is sending a very clear message. It is time for the authorities to ease financial conditions. Inflation pressures are weak; labor markets are soft; and investment and export plans have softened. Westpac predicted that the Reserve Bank would cut rates in December back in mid July. The case for lower rates is now strong.

Posted on

Rate cuts are coming – macrobusiness.com.au

The recent seasonal adjustments to the CPI and the reduction in the level of underlying inflation blunts the force of the RBA’s recent argument about inflationary pressures. But, absent an offshore catalysing event, that alone won’t make them cut rates.

Rather I think that household retrenchment and saving will lower economic activity in the economy and that the RBA has overplayed the extent that the mining boom induced income will wash through the Australian economy.

Increasingly, we are getting confirmation of this theory. Unfortunately, we are seeing Australians lose jobs at an increasing rate. Data released yesterday by Westpac on consumer unemployment expectations suggests this is going to get worse.

via Rate cuts are coming – macrobusiness.com.au

Powered by WordPress / WordPress Maintenance By WPSmart