Stephen, if it is indeed the case that the RBA is done, do you think they *should* be done? One could say that even though inflation may have been allowed to get and stay too high, there is no point over-compensating for that now.
If the RBA is done and you believe rightly so (taking your point that banks have recently raised rates outside of official increases), what if anything does this imply for the value of the ‘expected real cash rate’ measure you (and Don Harding) have been talking about? Is it that due to higher levels of household debt, current nominal interest rates are more important to spending decisions and hence monetary policy than expected real rates? How else could current official (and even market) rates cause the type of slowdown you know see as probable?
Posted by .(JavaScript must be enabled to view this email address) on 07/23 at 12:59 PM
Assuming constant margins over official cash, then a declining expected real official rate would also imply declining retail rates too, but as we know, these margins have been rising.
If margins were to contract again, you could have a situation in which the RBA had to raise rates to offset a market-led reduction in retail rates (which could make for some amusing headlines!)
People forget it was only 18 months or so ago that the RBA rationalised rate increases precisely on the basis of narrowing retail lending margins. This why AussieMac makes no sense. What AussieMac giveth the RBA would almost certainly taketh away. You would have two arms of government working at cross-purposes.
Comments
Stephen, if it is indeed the case that the RBA is done, do you think they *should* be done? One could say that even though inflation may have been allowed to get and stay too high, there is no point over-compensating for that now.
If the RBA is done and you believe rightly so (taking your point that banks have recently raised rates outside of official increases), what if anything does this imply for the value of the ‘expected real cash rate’ measure you (and Don Harding) have been talking about? Is it that due to higher levels of household debt, current nominal interest rates are more important to spending decisions and hence monetary policy than expected real rates? How else could current official (and even market) rates cause the type of slowdown you know see as probable?
Posted by .(JavaScript must be enabled to view this email address) on 07/23 at 12:59 PM
Assuming constant margins over official cash, then a declining expected real official rate would also imply declining retail rates too, but as we know, these margins have been rising.
If margins were to contract again, you could have a situation in which the RBA had to raise rates to offset a market-led reduction in retail rates (which could make for some amusing headlines!)
People forget it was only 18 months or so ago that the RBA rationalised rate increases precisely on the basis of narrowing retail lending margins. This why AussieMac makes no sense. What AussieMac giveth the RBA would almost certainly taketh away. You would have two arms of government working at cross-purposes.
Will say something about this in Friday’s column.
Posted by skirchner on 07/23 at 03:07 PM