Tuesday, 26 March 2013

More on RBA reticence

It has been noted on this blog that the RBA is clinging to its mining first policy and failing to engage with the rest of the world's central banks as they battle the nascent currency war.  Following its comments seeking to reassure earlier in the week, there has been some decent commentary on Macrobusiness.com.au about comments of the RBA and APRA on the difficult policy reform environment and how out of step the two bodies are with the rest of planet earth.

As noted RBA Governor Stevens decried reform fatigue:

....a point in the financial regulatory sphere where the G20 should be looking for careful and sustained efforts at implementation of the regulatory reforms that have already been broadly agreed, but being wary of adding further reforms to the work program....(here)

Macrobusiness notes the underlying concern could stem from a number of concerns - the amount of reform already, concerns about a change of government with new policies and the capacity of banks to comply more or even "that the RBA is more worried about the approaching mining investment cliff than they are letting on".

All true but this blog has a slightly different view.  Macrobusiness also talk about recent speeches at a meeting of central bankers in London this week, in particular from Fed Chairman Bernanke which it seems he is basically justifying the total debasement of the US Dollar via money printing programs:

....Regarding the effects of monetary easing on exchange rates and exports, I would note that trade-weighted real exchange rates of emerging market economies, with some exceptions, have not changed much from their values shortly before the intensification of the financial crisis in late 2008. Moreover, even if the expansionary policies of the advanced economies were to lead to significant currency appreciation in emerging markets, the resulting drag on their competitiveness would have to be balanced against the positive effects of stronger advanced-economy demand..... (here)

At a time of recurrent flagging demand! It goes on...

...It is true that interest rate differentials associated with differences in national monetary policies can promote cross-border capital flows as investors seek higher returns. But my reading of recent research makes me skeptical that these policy differences are the dominant force behind capital flows to emerging market economies; differences in growth prospects across countries and swings in investor risk sentiment seem to have played a larger role...

If this were true then the record high run of the Australian dollar would be simply down to the country's economic opportunities and not because Australian government bonds pay rates far higher than nearly most of the world!

So there you have it - Macrobusiness interprets this positively and mildly - positively in the sense that the Fed's actions are innovative policies and the actions by the RBA are failure to get with the program. This blog broadly agrees but comes to a different conclusion.  There is a currency war going on the the Fed's policies are especially provocative.  It is not that the RBA is not following - so far the RBA seems to be ignoring the situation completely and hoping it will go away..!  It will not and Australia is vulnerable...

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