If your problem is darkness, it’s better to light one quarter of a candle than to light any more of a candle (apparently)

Here’s Phil Lowe reporting on the RBA’s failure to meet its performance targets and refusal to do anything about it:

This decision [to cut rates by 0.25%] was not in response to a deterioration in the economic outlook since the previous update was published in early May. Rather, it reflected a judgement that we could do better than the path we looked to be on.

If anyone can fill me in on what that means, I’d be grateful.

Monetary policy is one way of helping get us onto to a better path. The decision earlier this month will assist here. It will support the economy through its effect on the exchange rate, lowering the cost of finance and boosting disposable incomes. In turn, this will support employment growth and inflation consistent with the target.

It would, however, be unrealistic to expect that lowering interest rates by ¼ of a percentage point will materially shift the path we look to be on. The most recent data – including the GDP and labour market data – do not suggest we are making any inroads into the economy’s spare capacity.

Steady as she goes.  

This entry was posted in Economics and public policy. Bookmark the permalink.

3 Responses to If your problem is darkness, it’s better to light one quarter of a candle than to light any more of a candle (apparently)

  1. Ross Cornwill says:

    And the pensioners that rely on bank accounts and rates. Bad luck mate I’m alright.

  2. Nicholas Gruen says:

    Well that’s rather a different point. Monetary policy and the bond market are not retirement income schemes. They’re the apex of the monetary system. Perhaps we should have some provision for self-funded retirees to invest up to some total amount in government provided risk free assets that pay some reasonable interest rate. Perhaps we shouldn’t. But we shouldn’t hold the monetary system hostage to that need. It has much larger things to accomplish.

  3. Ken Oliver says:

    Oh my. Remember how when it was obvious that interest rates needed to go down several hundred basis points urgently they kept dropping it by only 25 basis points at a time “so as to keep our powder dry”? Remember the RBA’s support of the “debt emergency” “our grandchildren will be paying it off” rubbish, at a time when the AUD was above parity and it was obvious we needed more government debt in the form of money? Remember how they tried to raise rates from the “emergency lows” of 4% to “more normal rates” despite it again being quite obvious that our demography, and our trade and investment partners’ demography, meant that <4%, in fact <<4%, was going to be the new normal for a very long period?

    These guys have made a string of errors since 2010 and we are paying for it with mediocre or worse national income and labour markets. Now error is forgiveable but refusing to admit it, and refusing to analyse the reasons (basically because both the Australian economy and international finance are structurally very different to the 80s and 90s when they were trained) – not so much.

Leave a Reply

Your email address will not be published. Required fields are marked *

Notify me of followup comments via e-mail. You can also subscribe without commenting.