Are Aussie interest rates about to hike?

Fri, 02 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance website at this address: https://au.finance.yahoo.com/news/are-aussie-interest-rates-about-to-hike-012908729.html 

---------------------------------------------

Are Aussie interest rates about to hike?

There is a slowly growing vibe that the next move in interest rates in Australia will be up. Perplexingly, money markets are starting to price in higher interest rates for reasons that are paying scant regard to local economic news.

It is a case of the local market reverting to its unthinking, unquestioning attitude to what the RBA tells them in private “Chatham House rule” meetings plus the lead from the US where its strong economy will see the Fed hike its interest rates a few times over the next six months.

In Australia and for the RBA, it is an approach that is ignoring a litany of weak economic indicators.

Think about this for a moment for the Australian economic scorecard. Private sector business investment is in free-fall to be down 13 per cent in the last year and 33 per cent in three years. Underlying inflation is the lowest ever recorded and has been below the bottom of the RBA target range for over a year. Wagers growth has slipped below 2 per cent which is the weakest wages growth in many decades. Employment growth has stalled and underemployment is at a record high.

Making the scenario of steady interest all the more problematic is the resilience of the Australian dollar which is being underpinned by current interest rate settings which has Australia one of the highest interest rate countries in the industrialised world. As a result, money continues to flood into Australia to underpin the Aussie dollar.

It seems the RBA and the market have ants in their collective pants about the possibility of higher house prices if interest rates were cut further. This ignores a couple of vital issues. Mortgage interest rates are already rising on the back of the rise in bank funding costs so a cut in official interest rates would at least partly reverse some of that pressure just when the economy needs it.

As noted, house prices are poised to weaken, perhaps even fall sharply, as the glut of property hits the market and investor demand falters. The fresh supply of housing will have a more significant dampening effect on dwelling prices than a small fall in interest rates. Thinking a rate cut from the RBA would underpin house prices is to ignore the other drivers of house prices.

Perhaps most importantly, it is the business sector that would be a significant beneficiary of lower interest rates with cash flows freed up on existing debt and the hurdle to borrow more for much needed investment lowered.

The economy is not disasterously weak, but it needs an injection of policy stimulus and interest rates can be cut quickly and easily and the RBA should simply do it.

It costs nothing, the global economy is hardly poised for an inflation break out and the risk that Australia’s inflation rate will skyrocket anywhere near the top of the RBA target band on a rate cut of even t50 basis points is fanciful.

A cold hard look at economic facts screams lower interest rates are needed. A convoluted, model based rose coloured forecasting strategy says rates should be on hold.

The RBA needs to put its fancy model aside for now and get into the real world and cut interest rates – and do it soon. RBA, your country needs you.

comments powered by Disqus

THE LATEST FROM THE KOUK

CLIMBING THE COVID MOUNTAIN

Wed, 29 Jul 2020

TEN ECONOMIC STEPS THAT FORM A PATHWAY TO THE TOP

THEKOUK and EVERALDATLARGE OUTLINE A WAY FOR THE PEOPLE OF AUSTRALIA TO CREATE AND MAINTAIN SUSTAINED PROSPERITY

Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

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: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

---------------------------- 

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.