RBA

mmm....shiney! said:
I'm not sure what the "true" inflation figures are so I can't comment on whether that guides their thinking or not.

Edit to add: I'm actually wondering whether they are fulfilling their mandate as opposed to being obsessed with inflation. I must admit I haven't read any minutes of meetings for a long time nor do I read much when Bullock is in the news so I couldn't say whether she is willing to sacrifice "the economic prosperity and welfare" of Australians in pursuit of crushing inflation. I'll admit to being a long term critic of the RBA though.
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I refer to Bullock’s statement when she first took the job
“We must raise unemployment”
 
Why cut rates?
People may be doing tough but the economy is doing ok and unemployment is still low. Historical average between 1990-2024 is 6.75%
We must remember that government and the RBA are reactionary bodies. Policies and decisions are made after the fact not before
 
mmm....shiney! said:
hadn't actually seen a government official admit it. They deliberately keep a sector of the electorate unemployed. Fkn disgusting.]
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And on the other hand they deliberately keep many artificially employed. Though you can be 100% sure they keep more people employed than unemployed.
 
Milton Friedman warned us of the consequences of big government.
Government becoming the largest employer once the shift from a manufacturing economy to a service economy.
The problem is, government doesn’t produce anything of value, we just become dependent on them. Dangerous waters
 
In thinking if the RBA will cut rates or not, I was looking at some of the factors that the RBA would consider.

  1. Aust Official rate at 4.35%
  2. Inflation rate at 3.2% (target range 2-3%). Not sure if we've seen the full Xmas holiday period spend effect yet.
  3. AUD/USD : 0.6231.......RBA talking recently of intervening in the market to support the AUD if it keeps losing value against the USD.
  4. Aust unemployment rate : 4% (Unemployment Rate in Australia averaged 6.57 percent from 1978 until 2024, reaching an all time high of 11.20 percent in December of 1992 and a record low of 3.40 percent in October of 2022). RBA wants a slightly higher unemployment rate to take some wage inflation out of the economy.
Then we have:
  1. US Official rate at 4.50%. JP making more noise about leaving the rate as is....not what the markets expected.
  2. Albo and pals trying to encourage the RBA into cutting rates to give them some good PR. 5 gets you 10 that if the RBA cuts rates on 18 Feb, Albo will be in his Comm car to see the GG that very day.
Overnight with Powell now being more likely to maintain than raise rates in 2025 was the final piece for me that the RBA will not cut in Feb.

If the RBA cuts by 15,20 or even 25 bps then we are likely to see investment funds flow back to the US for the better return and the AUD sold off and we see it slide below 0.60....which it well could without any rate cut for that matter. So if the RBA cuts rates, are they prepared to intervene to support the AUD or let it slide which will then make imports more expensive for the Australian public which means any mortgage payment savings could be eaten up by increased prices right away starting with petrol and in the coming months other imported consumer goods.

Being the RBA Governor right now wouldn't be fun. The Govt, the markets and the media all calling for or echoing others for a rate cut....They all seem to be blindly focused on our "official inflation rate" as the marker for a cut or not with most thinking 3.2% is close enough to 2-3% range...which is ain't. I haven't seen anyone in the media discuss the impact of lower Aust interest rates on the AUD and the knock on effect on consumer prices, which funny enough would mainly only be felt post the Federal election.....which would be perfect for Albo.

Should the RBA cut rates in Feb, then time to buy / top up on those companies (miners manly) with US denominated receivables and if they haven't forward bought AUD in the mid to high 60's out 12-18 months, but rather buy at spot, then we could some uplift in profits and divs for the miners during 2025/26.
 
Albo will hv the election in his bag should Bullock cut interest rate.. market has already sky-rocketed to accommodate the rate cut.
 
bubblebobble2 said:
Albo will hv the election in his bag should Bullock cut interest rate.. market has already sky-rocketed to accommodate the rate cut.
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I suspect the ALP's advertising company already has the ads ready to roll....Wonder if Albo has a "Plan B"?
 
Albo, with plan B???? he just paid TRUMP half Bill and then slapped with Steel/Alu tax... as well as reciprocal tariffs!!! He has alot riding on this interest rate cut! that's why Chalmers has introduced another board to make sure Bullock doesn't keep rate onhold (and even rise it)..cause she has no mortgage to pay....like normal aussies.
 
Oddjob said:
So if the RBA cuts rates, are they prepared to intervene to support the AUD or let it slide
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Support I'd say. It's supposed to be one of their jobs.

In the main the strength of the AUD and other currencies is relative to the USD. Apart from that boom we had just over a decade ago where the Oz was USD1.10 as our economy was outperforming against the USA, the strength of the US economy v the rest of the world will determine the value of the AUD. In other words, in 2 out 3 times it's the strength of the US economy when compared to the rest of the world that determines the value of a nation's currency. (See the image below)

The "Dollar Smile Theory" explains it well:

The Dollar Smile Theory posits that the USD should strengthen when the US economy is strong and when it is weak. The Dollar Smile's ‘trough’ indicates a point where the US economy is neither displaying outperformance nor underperformance against its peers.
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https://www.fpmarkets.com/education/forex-trading/everything-you-need-to-know-about-the-dollar-smile

I think they got it a bit wrong in that explanation as the trough could indicate a peer is outperforming the USA, as per the image. Tweaking it a bit with some annotations:

Screenshot 2025-02-15 at 8.57.55 am.png

We've been on the right hand side of the graph. We've begun to swing back to the left but we won't linger long in the trough, however that will depend upon the Trump administration's fiscal policy going forward. I think we're in a new age where monetary policy will take a back seat - which I think is long overdue.
 
sammysilver said:
I reckon a 0.10 cut. Make it interesting.
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Lol, like a game? ;)

CPI is in the RBA's target range so it has no choice but to lower if it is to retain any scrap of credibility it holds on to. If it fails to move rates lower, then the market will view that as a signal that the RBA's policy measures and forward guidance are unreliable, which will heighten uncertainty and further discourage growth. Unfortunately the theory in textbooks isn't always guided by reality and the RBA has had its nose firmly stuck in a textbook. It's not alone amongst CBs and economic pundits though.

The only excuse they have for not lowering rates is to argue that the CPI has not been in the 2 - 3% range for a "sustained" period of time. They may view 6 months as being too brief, although it took them 9 months before they lifted rates in response to CPI above 3% and they were roundly criticised by those same pundits for failing to act too quickly.
 
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