Aug 6, 2013

RBA decision sets the economic parameters of campaign

If the RBA cuts rates today, it will reflect how little support the government has provided the economy via the budget -- a situation that's not about to change, write Glenn Dyer and Bernard Keane.

This afternoon, according to the overwhelming consensus of market forecasters, the Reserve Bank will cut the cash rate to a record low of 2.5%. If that eventuates, it will sum up the problematic nature of the economic underpinnings of  this campaign, as the RBA has been left alone to try to steady the economy as it makes the much talked-about transition from the mining investment boom to an old-fashioned, domestic-driven growth pattern and job generation.

The post-meeting statement from RBA governor Glenn Stevens and then Friday’s third RBA Statement of Monetary Policy for the year, which will contain new forecasts for growth, but not inflation, will underline how little government will be doing to help the RBA ease the economy in the difficult period of transition. Despite Prime Minister Kevin Rudd’s productivity improvement plan, the real need is help for the economy from an easier fiscal policy in the next year to 18 months.

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30 thoughts on “RBA decision sets the economic parameters of campaign

  1. Gavin Moodie

    If the Coalition wins government and cuts government spending as it promises, how will it explain away slower growth and higher unemployment in 12 to 18 months? It will blame Labor for a fiscal ‘mess’, of course, but the electorate allows an incoming government only 12 months of such excuses.

  2. Hamis Hill

    So the massive private mortgage debt hanging over from the Howard “Golden era” has no bearing on the RBA decisions?
    Just so we’ve got that right?
    Cue that cricket noise.

  3. Gavin Moodie

    Mortgagors have been using interest rate cuts to pay off their mortgages faster than they need to and I think I recall a report of Stevens saying that mortgagors’ debt was no longer such a worry.

  4. Observation

    So where will we look to so we get some stimulus into the economy? Looking at this very simplistically:
    Housing – The pricing of housing has blown out and has rendered the introduction of young people into the market almost impossible for most. We may need to wait for inflation of everything else to catch up to it.
    Mining – Well that is in a downward trend and is starting to land in an area of some sort of normality rather than the overheated monster it had become.
    Manufacturing – The world has been played so that the only real workable manufacturing set up is in developing countries and China. Germany seems to be the only exception to this rule.
    The stock market – It looks as though the lessons are finally being learned where investment into money to make money for making moneys sake becomes a cesspool of deregulated white collar robbery. With the low interest rates, not even the automated cash injection of our compulsory super fund will make much difference.
    Agriculture – It seems we are selling the farms and rural communities are shrinking by the day.
    Infrastructure building – The NBN has taken up most of the political will to take on any further projects such as rail, port, water collection or alternative energy.
    Austerity measures – Please someone tell me how this works.
    Government Investment in industry and projects – Who could we trust to do this logically and diligently?

  5. Gavin Moodie

    I suggest the most likely stimulus will be from households increasing domestic spending by keeping their mortgage repayments and saving stable.

  6. Frank Birchall

    I don’t know why you give Hockey such an easy run; the guy is economically illiterate, serially mendacious and deceptive, and very much one of the ‘whatever it takes’ brigade. If he’s ‘the grown-up of the Coalition’s economic team’, I’d hate to see the juveniles!

  7. Hamis Hill

    So using lower interest rates to pay down excessive mortgages which are consuming more than the prudent 25% of income will not cause a problem?
    So where are these payments solving the problem?
    There is still a shortage of income to be spent on supporting the retail sector.
    1.75 Trillion is the size of the private debt, increasing domestic spending looks rather hopeful.
    And it is all Hopeless Howard’s fault, what you get when a numberdunce junior suburban solicitor and high school debating “champion” gets its mitts on the levers of power.
    Massive, record interest rates as a Treasurer and selling his country into hock as a PM.
    Abbott will bring on a recession set up by Howard.
    The RBA has been struggling with this reality for the last six years, while the culprits have been languishing on the beach on full, not half, pay.

  8. Gavin Moodie

    I am happy to blame Howard for a lot that is wrong with government finances, but don’t understand how he is to blame for private housing debt. This seems to me due more to people wanting bigger houses – the so-called McMansions – in preference to more affordable houses, units and flats.

  9. Observation

    The negative gearing of investment housing I think started the ball rolling. Howard and Costello inflamed the problem with the first home buyers grant which practically increased the house price by that amount.

    Everyone was too happy to keep watching the housing prices scream upwards. Looking back now, I would have thought someone would have said hey guys this cant keep going like this. Now we have basically locked out the next generations from the housing market and I dont think it will get better unless it is over a long period of time where it all levels out again.

  10. Gavin Moodie

    I agree on negative gearing and the first home buyer’s grant and add that exempting the main residence from capital gains tax (1) inflates house prices, (2) narrows the tax base and (3) distorts investment decisions.

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