False alarm on new RBA 'normal' rate as jobs surge continues Link
The Reserve Bank of Australia's discussion at this month's board meeting about how a cash rate of 3.5 per cent may be the new "normal" was part of a regular monthly "deep dive" into key policy topics and was planned six months ago.
As official data confirmed the labour market racked up the longest run of consecutive monthly gains in more than six years - led by a near 170,000-job surge in full-time work so far this year - markets ramped up speculation the central bank was shifting towards a more hawkish stance.
Both Prime Minister Malcolm Turnbull and Treasurer Scott Morrison on Thursday downplayed the idea that the Reserve Bank was signalling any near-term rate hike.
On Tuesday traders reacted dramatically to the Reserve Bank's research on the decline over the past decade in the so-called neutral cash rate - which it estimates is now eight rate hikes above today's 1.5 per cent level - to almost double the chance by May next year of the first rate increase since 2011.
Traders also pushed the dollar to just shy of US80¢ for the first time in more than two years, complicating the Reserve Bank's attempts to keep the economy accelerating without producing a real estate crash.
Many in markets appear to have over-interpreted the central bank's decision to discuss at this month's board meeting its research into the neutral nominal cash rate. Its inclusion was not intended as a hard signal over the current or near-term stance of monetary policy, but was aimed at informing board members about more longer-term issues.
While it was scheduled six months ago, it still provides a pointer to the likely next move as discussions of neutral rates are a hot topic among most other central banks, as well as the Bank for International Settlements. In almost every case policymakers are facing the challenge of crafting a credible justification for why they have kept rates so low for so long, as they prepare the ground to normalise settings.
Officials announced in last year's Reserve Bank annual report, following a review of the board's operation and processes, that policymakers would spend more time discussing "medium-term issues relevant to monetary policy at a number of meetings each year".
Tha RBA has actually signalled LOWER rates long term as its 'new normal' (well compared ta pre-GFC ones) is my best take on it.
Rufus
21 Jul 2017, 09:29 AM
What bubble. I'm in Brisbane and I don't see a bubble here.
Yep, there's no bubble in Brisvegas Rufus - Tho there is an oversupply of apartments right in tawards tha CBD I'd say.
Ex BP Golly
21 Jul 2017, 09:11 AM
What a mess.
It's not a mess Golly - It just means all those nasty little f***s in Sydvegas/Melvegas wot desired baby boomers would be forced ta retire in bumf*** wif ole herbie will get ta be forced ta retire in bumf*** wif ole herbie's youngs instead.
Traders also pushed the dollar to just shy of US80¢ for the first time in more than two years, complicating the Reserve Bank's attempts to keep the economy accelerating without producing a real estate crash.
Financial markets and households shouldn't "read into" the Reserve Bank of Australia's internal debate over the nation's so-called neutral interest rate or assume that near-term rate hikes are inevitable in the wake of tightening by offshore central banks, a top official said.
Guy Debelle, the Reserve Bank's deputy governor, said the global economic environment and global monetary policy settings that have contributed significantly to Australia's stimulatory rate settings " will likely continue to do so for the foreseeable future."
Dr Debelle suggested that while the fact that global central banks aren't set to deliver any additional monetary policy stimulus - which Australia's central bank would be compelled to match - negative factors keeping official interest rates low such as the lingering impact of the financial crisis, weak company investment, low wage growth and weak inflation "are still present'".
"While there are some tentative signs that they are abating, the evidence is inconclusive at this stage." Dr Debelle, speaking at a lunch function in Adelaide hosted by the Committee for Economic Development of Australia on Friday, downplayed the fact that the US Federal Reserve has hiked its key policy rate four times over the past two year to 1 per cent, as well as last week's increase by the Bank of Canada to 0.75 per cent.
"Just as the policy rate in Australia did not need to decline to the very low levels seen in other parts of the world, the fact that other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase," he said.
"The policy rates in both the US and Canada still remain below that in Australia." Dr Debelle devoted a considerable portion of his speech - titled "Global Influences on Domestic Monetary Policy" - on the significance of a decline over the past decade in Australia's neutral interest rate, a topic that was debated at this month's board meeting.
News of the discussion - and the fact the bank now thinks the new normal is 3.5 per cent - was revealed in the minutes of the July meeting released on Tuesday, triggering a surge in the Australian dollar close to US80¢ and heightened expectations for rate hikes early next year. "No significance should be read into the fact the neutral rate was discussed at this particular meeting," Dr Debelle said. "Most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate.
Ya off wif tha pixies Simons - A country wot's seen as a pretty desirable place ta be (for all sorts of reasons by all sorts of people) is pretty damn unlikely ta be "f***ed" anytime soon for mine.
Tho if ya's feelin' a bit down, I's just bin updated on tha grapevine that when Frummy takes up his new posi over at MB he's negotiated for a specialist barista cum dunny cleaner 'n dog walker ta be part of his package 'n if ya submits ya resume ya just might be considered ...
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