Inflation down, rates down?

There is a feeling is that the RBA will not cut the base rate tomorrow even after the latest inflation figures show that there was a 0.3 per cent fall last month.

Yet analysts and investors see little chance of the RBA cutting interest rates again at its monthly policy meeting on Tuesday, with recent commentary from the officials suggesting they were content to wait and assess the impact of past easing. The key cash rate has already been cut by a massive 425 basis points to a record low of 3.0 per cent.

But even if the RBA does cut rates, will the banks pass it on, or will they keep it for their own bonuses?

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35 Responses

  1. Time to put interest rates up!

    I reckon, I’ve supported you buggers with a job and regular income long enough … 🙂

  2. Not only does my bank not the pass the full rate cut on, they have also delayed the smaller cut for two to three months each time.

    Where’s the People’s Bank when we need it? (I’ll never forgive you, Hawke and Keating, for that one.)

  3. TB

    If you have been supporting me please send more money as I didn’t get the last lot 🙂

  4. Daphon

    Not a truer word said. Only when things turn to shit do we realise what we lose when governments sell off their assets to the vultures circling and pushing the Govt to do so.

  5. A slight topic diversion here.

    How’s this for new way of ripping some more money off customers.

    I have an account in which I keep just enough to pay for Internet transactions such as eBay purchases. I recently bought something using PayPal and put enough in the account to cover the purchase. PayPal scewed up somehow and deducted the amount twice (refunded the next day). Anyway, my bank allowed the second deduction to go through despite there being no funds in the account then charged me a $40 fee.

    A couple of days later I received a letter from the bank about the $40 which they called an ‘honour fee’. No, not a dishonour fee. They said they were doing me a favour by allowing the transaction to take me into debit so that I wouldn’t have any problems with the third party. Heaven help me if some third party accesses my account for unauthorised transactions.

    To me this charge by the bank amounts to theft. I believe allowing accounts to be overdrawn like this then charging a fee is becoming standard practice and is currently being looked into by Choice.

  6. Maybe we should start charging banks for the wads of stuff that they mail to us. Charge them for wasting our time?

  7. Joni,

    I have been tempted on many occasions to wrap up a brick and attach one of the pre-paid envelopes to it that come with the junk mailouts and post it.

  8. Daphon

    Didn’t someone suggested that we should do that – but with old washing machines?

  9. Damn just how terrible is this stimulus package of the governments.

    Manufacturing Index a record rise (off a low base).
    Record April retail figures
    Inflation down again
    Oz dollar over 80c
    Growth up
    …and several other good economic indicators (amongst a few average ones).

    Yet the opposition are still going on about the debt more or less telling Australian workers and businesses if we are in government we will close you all down and throw you onto the work for the dole heap.

    And now Hockey is going on about liabilities on debt of one trillion dollars just to make the figure sound as bad as possible, and whilst doing this the opposition refuses to say it would have no debt and will not put a figure on the debt they would allow. “There is no figure you can put on it.” said Turnbull.

  10. Mobius Ecko, on June 1st, 2009 at 7:25 pm Said:

    Damn just how terrible is this stimulus package of the governments

    The evidence that it is working seems pretty good but because there is no parallel economy where no stimulus was provided we will never really know.

    Tis a bit like Howard’s ideological proposition that ‘interest rates will always lower under a Liberal …’

    As for me, I think it was the correct measure to adopt (and I didn’t get any windfall). The neoliberal notion of letting the market rule got us into this mess and hopefully government action will rescue us.

  11. MB – we can quantify that the government spent $10,000,000,000 on cash handouts.

    The stimulus has nothing to do with inflation. This is due to a lower level of economic activity, particularly internationally. The result of low fuel prices, low interest rates and generally lower levels of economic activity.

    Retail figures – up how much? Marginal only. For 10 BILLION, we might have expected more than a blip.

    Exchange rate up. Do you really think this has anything to do with the stimulus? I think it has more to do with some anticipation in the recovery of prices in resources, due to a more positive sentiment about the Chinese economic growth.

    Growth up. We never expected the dip to be quite as severe here.

    Manufacturing up? How much is due to domestic consumption? Because this is the only component of any manufacturing growth that the stimulus can claim credit for. I think it is again due to a more positive sentiment internationally.

    Really MB, things could be a whole lot better. Or worse. The spending by the government has been poorly directed. We got less “bang for our buck” than we should have.

  12. Tom of Melbourne, on June 1st, 2009 at 8:18 pm Said:

    We got less “bang for our buck” than we should have.

    Tom, I am not a student of the ‘dismal science’ but as I understand it, there was an urgent need to get people spending. Whether it was spent on fine dining, attending the opera or playing the slots is simply irrelevant in the economic sense.

    Morally, of course, we know that playing the slots is degenerate but attending the opera is uplifting. As for paying outrageous prices for fine wine, well that’s only right and proper? Isn’t it.

  13. Oh c’mon Tom. I honestly believe good news or bad on the economy you would find fault just because it’s this government. A blip in Howard’s time was lauded as proof of great economic management, now it’s a sign of bad economic management.

    Retailers are saying the 19.5 billion spent which is over a 3% rise on a good previous month is directly because of the government’s stimulus. OK Tom, according to you they should just sack everyone, close up shop and go home until the GFC blows over whilst blaming the government for not doing anything. That would suit you to the ground?

    Don’t forget the right wing commentators and the opposition have been harping on for a long time now the package did nothing, absolutely nothing, yet data continues shows that not to be the case, Sour grapes doesn’t even get close to describing their unreasonable negativity.

    Yes parts of the packages were and are badly aimed, purely political, but on the whole it has been the right thing for the right time.

    Then how about answering the other part, and that is the opposition’s policy which as far as anyone can tell is more or less the same debt level but achieving it mostly through tax cuts that overwhelmingly go to the wealthy?

  14. but as I understand it, there was an urgent need to get people spending.
    Nature 5, on June 1st, 2009 at 8:29 pm

    I am not an economist either but from the little I have read they are trying not to make the same mistakes they made during Keatings recesion we had to have. Since this recession appears to be caused by something different to last time I suspect they have made another mistake.

    They have blown all the money in the kitty so when we really need it we will have nothing left.

    PS Adrian are you going to give credit for our good balance of trade on the stimulus package also.?? If it worked it should make our balance of trade worse.

  15. You definitely aren’t an economist Neil, and not very good at history either.

    It’s Keating’s failure that is being addressed by Rudd, not a repeat of it. Economists overwhelmingly state that Keating’s failure was not to stimulate fast enough and he introduced the spending too slowly to do any good, which also allowed Howard to use that against him in a very misleading election campaign which Howard conducted with not one tabled policy on the board, not a single policy. The first and only time a party has run an election campaign without any policies.

  16. Neil you credit or discredit whatever you want to Rudd. You certainly liked to credit everything good to Howard whether it had anything to do with him or not, and now you want to credit everything bad to Rudd no matter if he had anything to do with it or not.

    So you just go ahead and blame Rudd for everything bad, you are going to anyway no matter what the actual truth of it.

  17. Hi MB& N5.

    I think the obligation of government is to spend money with prudence.

    Are you aware of any analysis that demonstrates that those getting the handout was the group most likely to spend it on employment producing goods & services? I’ve not seen anything. Was it given to the demographic group more likely to spend than save? Is a cost benefit available? I don’t think so.

    I understand that governments should run deficits during periods of economic slow down, and I’ve not provided endorsement of the conservative policies.

    I am satisfied that we could have obtained a better economic effect for all the money that has been pumped into the economy.

    And Adrian, there is very little correlation between the stimulus and the various indicators you point out.

  18. It’s Keating’s failure that is being addressed by Rudd,”

    I doubt it Adrian. You know Henry et al have all these PhD’s and other qualifications. They are highly educated and very intelligent. However when push comes to shove they are totally useless.

    Give me the common sense of Howard and Costello any day

  19. Neil,

    Rudd is doing exactly what Howard and Costello did in 2001 – throw money at the population so they spend their way out of recession. Do some research.

    Mobius is right, Treasury (and Rudd through their advice) learnt from the early 90s recession, the stimulus there came too late. The theory this time was to get a lot of cash into the economy quickly so that it kept the retail and housing sectors up until capital works stimulus flowed through into the economy. In past recessions and economic slow downs, people close their wallets and the first jobs to go are those in retail – by giving cash and encouraging people to spend it, these jobs were retained (and even created it seems). The bigger capital works projects are now coming on line and the money from wages from these projects will also flow through to the retail sector. When you think about it it’s actually common sense how it works.

    Even if a big chunk of the money is saved, it means it is available to spend as we come out of the recession. The better peoples financial positions are, the safer they feel to spend as the economy picks up. This means a good strong recovery which creates jobs quickly.

  20. I don’t think anyone is arguing that some stimulus wasn’t warranted, it’s the extent that is the concern. And the manner. The levels of debt that are being racked up so quickly and the optimism of the growth figures in the forward projections make it pretty easy to wonder if these blokes have any idea as to what they’re doing. Moreover, I think they’ve made too much of the crisis as it affects Australia. Sure, it’s a big one worldwide, but this country entered it in pretty sound shape. Australia simply didn’t need the levels of stimulus that were perhaps required elsewhere.

  21. Treasury (and Rudd through their advice) learnt from the early 90s recession, the stimulus there came too late
    Dave55, on June 1st, 2009 at 9:58 pm

    Yes but our current recession is different and caused by different factors. Ken Henry may have a lot of knowledge but how much wisdom does he have???

    Furthermore I get the impression that Rudd and Swan are useless. They do not appear to be running the country- Treasury is. I never got that impression when Howard was in power.

  22. Tom,

    The cash stimulus here (coupled with the insulation rebates which you hate but I personally know have been used by people) amount to just under $20Bn. Now that’s a lot of money to pay for around 4% growth in retail spending but lets compare that to around 2-3% decline in other developed countries. If that decline had occurred here, a lot of extra people (generally low skilled retail employees) would be out of work. Instead of getting taxes from these people, the Government would be paying them unemployment benefits. So the value of the cash payments must be measured not only against a 6% net improvement on retail figures when compared to similar economies but also the savings on the Government bottom line.

    The other figures out today showed a decline in net operating profits of companies. A couple of things we need to note about this, while there is a 7.2% drop (seasonally adjusted) in operating profits, there was actually an increase in profits in 6 of the 9 sectors. The sectors recording a drop were: Mining, manufacturing and Business and Property and Business services. Forget about the mining sector though, while profits were down, they were coming of an incredible high and still around 60% higher than 2007 figures. Property and Business services is down quite a bit but the trend line is pretty flat. Manufacturing is the big fall and the trend there is bad (consistent with O/S experience). We need to keep in mind that our business remain profitable despite the profits being lower. We haven’t seen out big business report the losses that O/S companies have. So while the figures could be better, they aren’t all doom and gloom either.

  23. Neil,

    Research ‘Saving and Loans’.

    The cause of the recessions isn’t that different – the scale of the failures in the financial system this time are, if anything, worse than the early 90’s. If the treasury growth and unemployment forecasts are right, we will ride out a much more severe global recession with much less exposure than the 90s recession. Sure we may have a bigger Gov’t debt in raw $ terms but anyone who knows anything about economics doesn’t have a problem with Australia’s forecast level of Govt debt. It is light years better than any other Government and has been by the fact we started off with zero net debt and some cash in the kitty from the last Costello/ Howard surplus.

  24. James, $20bn less in stimulus or debt is bugger all in the scheme of things (and really, that’s all we are talking about if you want to quibble of parts of the stimulus).

    Turnbull also seems to forget that bringing forward two years of tax cuts (the alternative stimulus proposed by the coalition) would have a net costs as well … These tax cuts would have only benefited high income earners as well, so for all the crocodile tears that the stimulus wasn’t going to the unemployed, their alternative wouldn’t have either.

  25. I reckon we will see a rate cut tomorrow – there – I have put my private-ones on the line.

  26. Actually joni, it could be a good way to keep the AUD lower. I can’t see many other reasons for a cut though.

  27. That’s is one reason I think – dollar getting too high.

    And maybe the wankers bankers need some more play money.

  28. Furthermore I get the impression that Rudd and Swan are useless. They do not appear to be running the country- Treasury is. I never got that impression when Howard was in power.

    I think you’ve nailed it Neil! You get the “impression”, they do not “appear”, “I never got that impression“…

    That’s the very nature of politics – SPIN, how well you sell the message given to you by those who really are running the economy.

    As Rory Robertson put it:

    Robertson points out that these days global markets set the exchange rate, the Reserve Bank sets interest rates and banks do more or less what they want.

    “Canberra’s macroeconomic management task today is a shadow of its former self. It’s not quite on “auto pilot”, but institutional changes over recent decades mean the Australian economy runs with less direct input from Canberra than ever before.”

    He unkindly observes that the volume of economic commentary emanating from the mouth of the Treasurer about for example the GDP, inflation, interest rates, unemployment, commodity prices and so on dwarfs his ability to do actually do anything about those things.

    “The job of any modern Treasurer – Liberal or Labor – is not so much to manage the economy as to pretend to manage the economy. The biggest part of the job is to provide regular and upbeat economic commentary.,” Robertson says.

    “On a typical day, the job is to explain that everything is going very well, and that’s all because of us. And, if everything is not going well – it’s not our fault.”

    That’s not to say that the boffins in the Reserve Bank and the Treasury don’t fret a lot and work hard, but they keep their jobs and do them as best they can whichever Treasurer finds himself “in power”. The Reserve Bank makes its decisions without reference to him.

    Robertson says those institutions “don’t skip a beat when one Treasurer leaves and a new one arrives.”

    Usually, “new Treasurers are not economists but career politicians. The good news is that Ken Henry at the Treasury and Governor Stevens at the Reserve Bank will be keen to provide excellent economic tuition and advice to any new Treasurer – Liberal or Labor, former lawyer or former union official, whatever. In particular, they will highlight the things to say and do to look smart, or look dumb.”

    Treasurers and Prime Ministers do have a lot of say over government spending and tax rates (and that’s why those things are widely and misleadingly reported as if they were important economic levers).

    http://petermartin.blogspot.com/2007/09/tuesday-column-its-not-about-economic.html

  29. bacchus, on June 2nd, 2009 at 12:04 am

    Interesting comments. If it was Henry’s advice to Swan to go early and hard at retail spending I do not believe that Costello would have followed his advice. He would have told Henry to go jump. He would have said that the cash splash is a waste of money.

    Anyway thats my opinion.

  30. Fair enough Neil – everyone’s entitled to opinions – some more informed than others – how about Mr Robertson’s take on the current situation?
    http://petermartin.blogspot.com/2009/05/rory-robertson-canberras-approach.html
    Note, he doesn’t say Rudd & Swan are getting it correct here, rather he implies that Stevens and Henry are.

    Global economic cycle is the big driver of recent Budget developments

    “When thinking about things like interest rates, Budget deficits and public debt, it’s important to keep in mind that much of what happens – good and bad – simply reflects the power of the economic cycle.

    That is, when an economy grows strongly year after year, interest rates go up, Budget revenues rise faster than expected, Budget surpluses emerge and grow, and public debt disappears, largely painlessly, sometimes even with tax cuts year after year.

    By contrast, when an economy turns down sharply, interest rates fall, revenues surprise sharply on the downside, Budget deficits emerge and grow, and government debt balloons. If an economy goes from boom to recession quickly, as ours just did, the turnaround in these variables can be dramatic…

    Would Budget story really be much different if Coalition still in power?

    “With the economic backdrop having deteriorated so sharply since the mid-September collapse of Lehmans, Australia’s sharp swing from Budget surpluses to deficits clearly has little to do with who happens to be holding the reins in Canberra at present.

    Given that the Coalition was keen on tax cuts and increased spending during the boom earlier this decade, it’s hard to think it suddenly could resist more of the same in the current recession. After all, recall Canberra’s quick expansionary fiscal-policy response to sudden economic weakness back in 2000-01.

    While most of the bad news on the economy and the Budget has indeed emerged in the 18 months since the baton in Canberra passed from the Coalition and Treasurer Costello to Labor and Treasurer Swan, this merely reinforces the old story that – in politics as in life generally – “timing is everything”.

  31. how about Mr Robertson’s take on the current situation?

    Don’t know. I think Costello’s initial budget surplus’s were due to Liberal party policy cuts rather than a rapidly improving economy. Same goes with Kennett in Victoria.

    The little bit of reading i have down leads me to believe govt policy made Keatings recession we had to have much worse than it should have been. We had 28 months of double digit unemployment whereas the US had none. Hence the Henry policy of stimulus early rather than latter for this recession.

    Yes i do believe that govts can make a difference. I also do not believe that we should surrender to the GFC and say it does not matter who was in power.

  32. Now with reports like this I find it hard to believe we are in a GFC.

    http://www.news.com.au/story/0,27574,25575093-29277,00.html

  33. Damn – I lost 😦

  34. Dave, I don’t think the leader of the Opposition has the faintest idea what he might have done. Hockey has some idea, Costello has most of all, but he’s not sharing with Turnbull.

    But I’m talking about the current government, and I think the types of debt we are talking about are unnecessary and obscene.

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