RBA’s ‘shadow board’ says interest rates are appropriate

The Reserve Bank has no need to cut interest rates tomorrow according to the Australian National University.

Economists from the ANU are part of what some call the RBA’s ‘shadow board’. 

The ANU says the current interest rates are appropriate despite recent mortgage credit tightening and soft inflation.

Shadow board chairman Dr Timo Henckel spoke to the Australian Financial Review.

“Economic growth and the unemployment rate continue to underwhelm,” he said. 

“The global economy looks weak and financial markets are nervous.”

“The RBA shadow board…prefers to keep the cash rate on hold, attaching a 65 per cent probability to this being the appropriate policy setting.” 

The shadow board is a project at ANU that brings together nine of Australia’s best experts to make a call on the best monetary policy settings ahead of each RBA board meeting. It currently has two people on it that have previously served on the RBA board. 

HSBC chief economist Paul Bloxham is on the shadow board is one person who thinks the lower than expected inflation might tip the RBA into another rate cut tomorrow. 

“The question isn’t whether growth is picking up; it is can we get a bit more growth because actually inflation is low enough that there’s scope for the RBA to deliver more stimulus?” he said. 

While price stability and low inflation can be a good thing, once they fall too much it can make consumers stop spending and businesses stop investing. If the cost of debt starts rising it can be a real problem for the economy.

“The risk is that the growing challenge, globally, of achieving desired inflation outcomes could now also be becoming an Australian problem,” Macquarie Wealth Management stated in a research note. 

“As a result, we think that the question for monetary policy is likely to morph beyond whether the RBA cuts on Melbourne Cup day to how many more cuts will be delivered through 2016.”


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