RBA’s Incompetence

Discussion in 'Property Market Economics' started by Dmash, 6th May, 2022.

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  1. Dmash

    Dmash Well-Known Member

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    The more I think about it the more you’re probably spot on here. 40bps brings us to .75 and another .25 increase before September.

    Great times ahead, as our fearless leader Scotty from marketing says, the economy has never been stronger!

    Bring on 2.5% cash rate I say
     
  2. Coxy89

    Coxy89 Well-Known Member

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    Wage growth still undershot and real wages are falling. Workforce participation rate actually dropped in the month. With a labour market this tight surely we should be seeing some more growth in wages.

    Is raising rates actually going to be able to put a lid on inflation? It's not going to improve any of the supply problems, it will reduce demand for the future but there's a lot inflation already baked in with the current situation. If they hike and tank the rest of the economy is that ok? Everyone's happy for their assets to get inflated 30% over a year but we can't have a 5% wage rise or 5% increase in the cost of goods?
     
  3. Tofubiscuit

    Tofubiscuit Well-Known Member

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    RBA is in a tricky spot.

    Even with wage data indicating a more careful rate increase. The market still has RBA rate 3% by early 2023.

    If RBA stopped peak rate at 2%, Fed has indicated they will quash inflation and prepare for a "Softish landing"... high US rates will increase our banks borrowing cost and also lower our AUD, which will increase inflation domestically in Australia.

    Really interesting times ahead.

    Will RBA choose high inflation and price instability which will reck havoc or push high rates not seen in a decade and cause asset deflation. The latter option may be the better of the 2.
     
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  4. Coxy89

    Coxy89 Well-Known Member

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    I think the affect of overseas rates on the banks costs are a bit overblown

    Banking Indicators | Chart Pack

    60% of funds from deposits, only 30 odd percent from other debt so if this portion of their funding mix gets more expensive will it won't necessarily have the exact impact on funding costs.



    [​IMG]
     
  5. Teatowel

    Teatowel Well-Known Member

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    the issue is if overseas deposits rates increase then their is an incentive for deposits to leave Australia and Australian banks will be required to increase their deposit rates or increase debt funding which is getting rather expensive
     
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  6. Coxy89

    Coxy89 Well-Known Member

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    Are people going to move their offset balances if they get 5% overseas? Not to mention the tax implications of foreign income.
     
  7. Teatowel

    Teatowel Well-Known Member

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    wouldn't make sense of move an offset but large term deposits it certainly would, its just interest income and maybe some forex movements would be fairly simple from a tax perspective
     
  8. chewmylegoff

    chewmylegoff Well-Known Member

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    Doubtful that ppl are going to start moving money offshore to access slightly higher interest rates. Most people don’t even bother to switch banks domestically to get better rates…even if you are proactive, you need a pretty big premium for it to be worth it given the exchange rate risk you’re taking.

    would have thought most rational people would rotate from AUD term deposit to AUD corporate bonds if they wanted to take more risk to get a higher interest rate.
     
  9. Teatowel

    Teatowel Well-Known Member

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    If we fall behind in rates the AUD will likely weaken we have seen it wobble already, if you have large sum of cash it might make alot of sense to park it in USD for a while
     
  10. chewmylegoff

    chewmylegoff Well-Known Member

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    It might make sense if you were minded to speculate (although only if you did it now rather than waiting for this situation to arise and AUD to materially weaken vs USD).

    However, people with money on term deposit with Australian banks have most likely put it there because (I) they live in Australia and their costs and liabilities are likely in AUD; and (II) they don’t want to place their capital at risk.

    It would be pretty odd if people with that profile decided to suddenly make a very risky interest rate play with their cash putting themselves in a situation where they could easily lose a large chunk of their capital (esp if they’re locking it up in a multi-year USD term deposit and therefore removing their ability to react to changing market conditions).
     
  11. Teatowel

    Teatowel Well-Known Member

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    I feel like my original post of " The issue is if overseas deposits rates increase then their is an incentive for deposits to leave Australia and Australian banks will be required to increase their deposit rates or increase debt funding which is getting rather expensive" has somehow been interpreted as I'm suggesting Joe blo with 200k laying around is going to send it overseas I was simply saying that when there is an incentive/advantage not to park cash in AUD people are going to do it and it's going to be people with large sums or those looking to hedge or arbitrage. Either way banks will need to incentivise people to deposit money here by raising deposit rates (increased costs) or by debt funding which is also going to increase costs.
     
  12. Coxy89

    Coxy89 Well-Known Member

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    I think everyone understands that. The question is is there enough people with a risk profile that would see them move money offshore in enough quantities to make a big difference in banks lending rates.

    I don't think it's as big a problem as had been suggested.
     
  13. Teatowel

    Teatowel Well-Known Member

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    So you agree with the original post I responded to that when overseas rates increase it will have minimal affect on Australian banks funding costs and they won't be required to raise rates? we agree to disagree I guess
     
  14. Coxy89

    Coxy89 Well-Known Member

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    Yes I agree with the original post as it was my post? I think I'm going mad.

    I think the more likely scenario if overseas markets start driving the interest rates here higher than expected the RBA will be coming back in with TFF options to lower lending costs here if the economy looks like it is going to slow down too much.

    Pretty much exactly what happened in Europe/us every time they started tightening monetary policy
     
  15. Tofubiscuit

    Tofubiscuit Well-Known Member

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    The developed economies are like caffine addicts having 8+ shots of coffee everyday to keep going.

    Going cold turkey will hurt and sometimes will need to have that extra shot of coffee to manage the withdraw.
     
  16. dunno

    dunno Well-Known Member

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    The title of this thread is "RBA Incompetence" and their no rises before 2024 prediction is admitted by them as 'unfortunate' but hey they have excuses (jaw boning might be legitimate) and have promised to change - well at least hold a review into voicing predictions.

    Moving on. Will their next move be incompetent?

    The basic disagreement between the RBA and the market contained in market pricing information is:

    RBA seems to be indicating getting to neutral rates will probably be enough. Transitory supply issues will abate and the porridge will be just right.

    Markets are indicating inflation is too hot and neutral will be too cold to stop it. The market is indicating there is too much cash reserves from pandemic stimulation too much residual fiscal stimulus and too much wealth effect in the system as well. Above Neutral will be required to soak up the cash reserves and create a recession in asset pricing to cool the wealth effect.

    Regardless whether the RBA is right or ultimately the market is right and rates above neutral creating recession will be needed to stop inflation - getting to neutral fast seems the right thing at this point.

    Speed to neutral rates will be the next thing to judge RBA competence on. Getting to neutral gives them most flexibility to react to future developments. But good reaction probably requires them to give up on prediction.
     
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  17. bamp

    bamp Well-Known Member

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    It's almost unfair if he gets voted out before he can see the consequences of his actions. Then liberals can say "look what happened when labour was in power", similar to what the Republicans are doing to democrats in the US
     
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  18. Coxy89

    Coxy89 Well-Known Member

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    The notion that they're incompetent for trying to calm markets in times of great uncertainty is nonsense. What do you want them to say? The sky is falling the govt is incompetent and we have no idea how we're going to get out of this without a recession in which thousands lose their job?

    If they're incompetent what does competence look like for the critics? Go back to mid 21 and what would you say to the markets coming out of the pandemic? Hey guys cash rate is going back up to 3% quick smart after this because clearly we're going to be fine from here on in. I really don't get what people expect them to do differently
     
  19. KJA182

    KJA182 Well-Known Member

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    The market sorts itself out. What they did, was lower the discount rate which is especially important to long duration assets. so, they blew a big bubble in tech (esp unprofitable tech), and housing. Just look at some darling tech names - e.g. all the buy now pay later stocks. Down 80 - 90%. What about all the retail mum and dad holders who bought into this while they were going up, directly as a result of RBA and other central bank policy?

    Yes, the RBA is incompetent. They have one job, keep inflation in a 2 - 3 % band, and they failed. Any other worker in modern day life would be chastised for such a failure in their job, but somehow the boffins at the RBA get a pass.
     
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  20. ozhiker

    ozhiker Well-Known Member

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    Seems like RBA in catch up mode? May be next month we get 0.15 to get back to clean 1.00
     
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