The RBA about to get on board the rate hiking train

Fri, 28 Mar 2014  |  

It is refreshing to see the RBA catching up to my view about the strength of the domestic economy. In recent days and weeks, RBA officials have finally acknowledged some of the general risks to inflation associated with a clear strengthening in the non-mining parts of the economy and from what is an increasingly worrying lift in house prices.

The RBA Board meeting next Tuesday, 1 April, is likely to throw a few more hints that the current 2.5 per cent cash rate is not appropriate for the current fundamentals. The foreign exchange market understanding this as the AUD powers to 0.93 US, even though it is taking an eternity for the many strategists to roll over to the new information.

Booming double digit growth in house prices, a record high level of new housing construction, rising commodity prices, exports surging in both volume and value terms and consumer demand expanding at a solid clip are threatening to put a rocket under inflation, which has already been marching higher since the middle of last year.

Even what appeared to be a shaky labour market is no more. Employment gains are starting to pick up, and the forward indicators from the various private sector surveys suggest the unemployment rate is very close to a cyclical peak.

Which leads to the core forecasting scenario that the RBA will be looking at next week.

  • Real GDP growth lifting to 3.5 per cent by late 2014 and into 2015.
  • Inflation running at 2.75 to 3 per cent over the forecast horizon with upside risks if the labour market improvement is stronger than expected.
  • The unemployment rate to fall to 5.5 per cent, or less, by early 2015 on the back of the stronger domestic economy.
  • Global economic conditions are clearly holding at a strong pace, with policy makers in the large economies continuing to aim for growth.

And these are the mid-point forecasts. Any upside from policy being too easy for too long or a soft effort on fiscal consolidation in the budget in May would see the numbers stronger than presented here.

The end point is that the RBA realises monetary policy is too easy and as a result it is poised to hike interest rates from the historically low 2.5 per cent. My best guess is that the hike will be in May, after the RBA uses the next 5 weeks to soften up the market for such a move and after the March quarter CPI confirms inflation at the top end of the 2 to 3 per cent target band.

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Wed, 29 Jul 2020



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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link:   


The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.