Expert insights Investing The cash rate is going to be locked at 1.5 per cent for a very long time: Pete Wargent
The cash rate is going to be locked at 1.5 per cent for a very long time: Pete Wargent
Pete WargentDecember 17, 2020
EXPERT OBSERVER
A double-shot Friday, with speeches from both Reserve Bank Governor Lowe and Assistant Governor Luci Ellis.
Lowe's speech effectively confirmed that the inflation target is asymmetric.
Although 'committed' to the 2 to 3 per cent inflation target, the next move in interest rates will be up, he noted, even though inflation is yet again set to fall below the target.
As energy and fuel price pressures ease the rate of inflation will likely drop over the second half of the year.
That's good to the extent that it eases pressure on household budgets, of course.
But, in the spirit of Mr. Micawber, it is hoped that eventually inflation will pick up again.
Amazon might have something to say about that as retail price deflation again rears its head.
Rates on hold
As energy and fuel price pressures ease the rate of inflation will likely drop over the second half of the year.
That's good to the extent that it eases pressure on household budgets, of course.
But, in the spirit of Mr. Micawber, it is hoped that eventually inflation will pick up again.
Amazon might have something to say about that as retail price deflation again rears its head.
Rates on hold
Whether you agree or otherwise, at least it's been made clear: the cash rate is going to be set at 1.5 per cent for a long time!
Probably a very long time.
Probably a very long time.
Lowe also delivered an interesting interpretation of housing credit dynamics, noting that the slowing of the housing market had reduced demand for credit by investors, in doing so citing low mortgage rates as evidence that the reduced supply of credit has not been the main story.
The plural of anecdote is not data, but that's not quite the feedback we've been getting from mortgage brokers.
Semantics, maybe, given the reflexive nature of such things.
Luci on lags
Assistant Governor Ellis also presented an interesting speech on lags, showing how the unemployment rate has been improving (if not very much for the long term unemployed).
No arguments there, although building permits are now falling away outside Melbourne (OK, and Hobart), while money growth is now at the lowest level in more than a quarter of a century.
If those weak leading indicators persist, then eventually the economy will start to slow too...yes, it's those pesky lags again!
Maybe that's already happening, according to the timeliest business surveys.
The labour force figures released this week also showed that the growth in hours worked is already on the way down.
Long story short, inflation is low because the economy remains well below its full capacity.
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.
Pete Wargent
Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.
