No major forecaster is looking for the RBA to cut rates tomorrow.
That’s the belief of the market and its also the “decision” announced this morning by the Shadow RBA board. The board is made up of prominent academics and economists and includes former RBA board members Professor Bob Gregory and Professor Warwick McKibbin.
What’s interesting is not that the Shadow board believes the RBA should hold, nor even that they think the next move should be an increase in rates.
What’s interesting is the language the board used to explain its decision.
In a press release, RBA Shadow board chair Dr Timo Henckel said:
Unemployment is up slightly, investment down, and consumer and business confidence remain fragile. The international economy continues to pose a threat to the Australian economy and inflation remains comfortably within the RBA’s target band.
That’s a statement that could easily accompany the next RBA cut or either of the two this year.
It’s Sydney house prices which have the Shadow Board worried.
“This remains a primary concern for many Shadow board members as the asset price increases coincide with an increase in private sector leverage, leading to misallocated investment and opening up the possibility of a costly price correction,” Dr Henckel said.
There has certainly been a surge in property prices in Sydney and Melbourne but as the Shadow board notes elsewhere, the Australian economy is weak and the international outlook clouded.
That supports another cut at some point down the road, not the rate hike it is advocating.