RBA next interest rate decision - Tuesday 18 June. Not expecting the cash rate to change. No change to the cash rate will be positive for the XJO.
The RBA's three main drivers for setting the cash rate are: - inflation rate and trajectory - currently not falling, possibly rising. - employment levels - currently high and rising. - value of the AUD - currently low and not rising.
Current levels of inflation and the AUD have both been indicating for some time that the cash rate should be higher. And decreasing unemployment is now strongly pointing in the same direction.
For some time, the RBA has been using the excuse of preventing unemployment from rising as being its main reason for not raising the cash rate to a more realistic level. Now that unemployment is actually falling despite already being at unusually low levels, there are no more excuses left. But I think that the RBA still won't lift the cash rate. I expect that their excuse this time will be that they will claim that they need to "wait and see" what the next quarterly CPI figures look like (due in July).
Low unemployment is the main justification for high immigration. High immigration pushes house prices and rents higher when they are already too high. This is simply a consequence of high demand and low supply. Yet many populist media hacks and politicians try to pretend that interest rates are already too high, so they push for lower interest rates. Many say that it is high interest rates that are a main cause of high rents. I am certain that they are wrong. I am very sure that lower interest rates would push house prices higher and rents higher. And lower interest rates will push unemployment lower, which will justify more immigration, both of which will push house prices and rents even higher. Hard to imagine the Australian economy getting more absurd, but this appears to be where it is going. And it has been totally predictable that property prices and rents have got to where they are now.
Politicians have given the RBA too much control, presumably so that any unpopular outcomes can be blamed on the highly-paid RBA. But also I suspect that it is because hardly any professional politician these days has an adequate grasp of economics to be able to understand enough to be able to make good economic decisions. Politically, it suits the current government just fine to have an RBA that likes low interest rates. Although the result is that there are several hands instead of a single hand at the tiller of the economy. The consequences are far from ideal.
The RBA really is a joke. They even get to set their own inflation target, and they get to set themselves their own target for how long they give themselves to get inflation down to their inflation target. I cannot see any justification for why the government cannot set these two parameters and impose them on the RBA. There is no need for independence here. Also, I can see no justification for these two parameters having been set so high.
Of course, RBA staff are allowed to borrow money to purchase investment properties that they can then rent out. A nice little sideline, particularly as their salaries are so high that they can borrow heaps of money. And of course this is Australia, so no media hacks (many of whom either probably do the same thing or have mortgages) don't comment about this apparent massive conflict of interest. Totally taboo. Low interest rates, rising property prices and rising rents all contribute to the profitability of property investors. And don't expect politicians to sort this out because many of them are also into the same racket. I would very much like to know the total amount of money that has been borrowed by property investors who are employed by the RBA. I suspect that it could be billions.
It was interesting to hear the new deputy governor of the RBA talk recently about why high inflation is a very bad thing for most people. Will his views prevail? Or will he get on board the gravy train and change his tune? Or how long will it be before he gets tired of banging his head against the RBA brick wall and goes elsewhere?
(20min delay)