Thanks b_b, I'm always interested on your thoughts on this.
Didn't we get a current account surplus last quarter, though? Also, I'm wondering how much longer the gov will persist with their return to surplus line.
Yep, we are still headed for ZIRP IMO. Down another 50bpts since this thread began. So long as the federal Govt tries to balance the budget and we continue to run a CAD, there is nowhere else for interest rates to go over the medium term. That in not to say we won’t get a rate hike every now and then, but the trend is clear.
+1
I never thought we would see ZIRP in Australia.. now I wonder if we will get to NIRP
Thanks b_b, I'm always interested on your thoughts on this.
Didn't we get a current account surplus last quarter, though? Also, I'm wondering how much longer the gov will persist with their return to surplus line.
Your thoughts?
Hi Stinkbug,
We recorded a trade surplus last month. The current account surplus (deficit) reflects the trade position plus (minus) interest & dividends on prior year deficits. For Australia the CAD is generally always in deficit. A current account deficit = capital account surplus (foreigners saving in AUD)
As per my sig; Private domestic savings + government savings + foreign savings = 0
Since foreign savings are +ve (as per the CAD), and the government is trying to get to +ve (surplus) it means the private domestic sector has to run a deficit i.e. spend more than it earns.
The only way to do that is to take on more leverage. So the keep the economy running, the central bank will do what it can to encourage more private sector debt. Lower interest rates.
The best way to have higher interest rates is to - turn the current account deficit into a surplus or/and - The government sustain a deficit = c5% of GDP or/and - The domestics company sector run a massive financial deficit (big CAPEX program)
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