Reserve Bank of Australia RBA

Australia RBA should realise that 2.5% is not low

Australian economists are continually suggesting that monetary flows in to positively charged American economy is having a negative impact on capital flows in Australia. Janet Yellen’s remarks and actions to reduce taper and possible looking for rate rises in early 2015 has markets rattled and the AUDUSD lower and lower.

The Australian economy that is heavily dependent on Chinese data, housing and resource mining has managed to steer clear of much of the financial crisis and the RBA keep communicating low interest rates not being sustainable.

Fact remains that Australia has maintained high interest rates and there are significant reason to lower interest rates further.

Reason 1: Unemployment and Poverty are on the rise in Australia according The Australian Council of Social Service (ACOSS) revealed that more than 600,000 children, and one third of children in single parent families live below the poverty line.

Reason 2: China’s economy is undergoing a revamp and is revising GDP targets downwards making the resource mining industry less profitable as demand reduces.

Reason 3: The Big 4 Banks in Australia are pushing significant profits and markets have only recently become more competitive in the mortgage business. Lenders have much left to give to small and medium sized business’ and home buyers.

Reason 4: The GST has pushed retail sales abroad and the low Australian Dollar is not being spend at home as the online revolution is not changing course in direction due to a weak dollar as one would have historically expected. The spending and buyer behaviour has changed permanently.

Reason 5: The Automotive industry was killed by the high interest rates as local manufacturers could not beat American, European and Asian manufacturers which had finance deals available at 0% to boost sales facilitated by national central banks.

Reason 6: As the manufacturing boom dies off in Australia and China restructures – Australia must continue to seek riches of its overinflated property sector and lower interest rates.

These reasons should be reason enough for Glenn Stevens to revisit the playbook that he has so far thrown at his constituents of threatening with increasing rates to boost the currency markets.

The old school policies here and the combined efforts by treasurer Joe Hockey is not lending Australians and respectively the business sector to build any confidence.

The RBA Assistant Governor Guy Debelle himself mentioned that since the monetary policy on an international level is moving towards various direction – configuring the fiscal setup is a very complicated task as parity is lost in this translation and currency pairs are hitting and breaking through records all over the place.

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  1. Pingback: RBA – how the conversation changed to lower rates ahead now? | Rao Companies - Investing Intelligence

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