Tuesday, 19 March 2013

What's wrong with the RBA

A well written piece looking at the short-sightedness of the RBA revealed by Philip Lowe in his speech this week.  While there was a logic to Lowe's statements, it is argued that they were unbalanced, skewed by bias and importantly not based on sound assumptions.  Couldn't agree more!

..., had macroprudential tools been used then the RBA would never have had to fear a blowoff in credit associated with the boom, rates wold have been much lower and the dollar too. We would not have had to embrace Dutch disease as a way of managing surging mining investment...

...Lowe’s internal balance (note it is not “external” balance leaving him an out later on) of course did have its casualties. The major ones being Australia’s non-mining tradable goods sectors: tourism, education, services generally and manufacturing especially. As we know, the last ABS private capex report showed manufacturing investment in outright collapse, running at 1989 levels before inflation adjustment: 

..The truth is it’s a punt and in this context it is hardly fair to describe Australia’s growth as  enjoying “internal balance”. If China does revert to mean, we’ll have nothing but under priced dirt to sell overseas...(here)

and that's not to mention the currency war!!

The Financial Times has a more sober analysis, focussing on the yield curve returning to normal (with its suggestion of a return to normal interest rate expectations).  As above, expectations of lower short term yields probably rests on assumptions which may simply not be true...wait and see.

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