'They just got it wrong': Why the RBA is doing a U-turn on interest rates

One of the few who thought otherwise was AMP Capital chief economist Shane Oliver who predicted in December the RBA's next move would be down."They just got it wrong," he said.Admitting the bank's target for unemployment and inflation simply can't be met with current monetary policy settings, the governor also made the case for extra spending by governments and "structural policies" to help businesses expand and employ more staff.

Around the globe, central banks are confronting the same issue and they have their cash rates lower . Only a week ago, the Reserve Bank of New Zealand cut its cash rate to 1.5 per cent with a jobless rate of 4.2 per cent. He said the Reserve had been caught by the softness of the economy, failing to appreciate the real level of under-employment and what that meant for household incomes that were already stressed because of low wages.Daniel Munoz

"Factor in the fall in house prices and that wealth effect, which the Reserve was denying was a factor for so long, and you get to this point." At the same time, interest payments are gobbling up an increasing share of household income. It's now at its highest level since before Tony Abbott won the 2013 election.Even with the falls in Sydney and Melbourne property prices over the past 18 months, they are still not affordable compared to just about every other city in the world.

Part of this is due to the federal government increasing its tax take. The governor noted efforts such as better matching of data by the ATO, which had delivered the revenue to improve the budget bottom line, had come at an economic price.

swrighteconomy Our addiction problem is getting worse. What was once fun and easy ie more debt now has serious repurcusions and the cold hard reality is we are running out of more stimulus, edging closer and closer to anxiety saying 'just one more cut' before inevitable breakdown asking why?!😢

swrighteconomy I don’t think rate cut will help when debts are massive and low wages growth

swrighteconomy “We’re here to perform another miracle” said LiarFromTheShire

swrighteconomy No They didn't want to rain on the SM lies and deceipt campaign

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RBA expected to cut interest rates twice this yearThree of Australia's smallest banks have already slashed their rates. 9News
Source: 9NewsAUS - 🏆 10. / 72 Read more »

Jobs market will determine rate cuts: RBAThe RBA has made clear a softening in the jobs market will force it to cut interest rates, just days after official figures showed unemployment starting to increase. So they have two aims (lower unemployment and a higher CPI) and one policy instrument (the OCR)? Good luck with that fellas. I'm thinking of the 'Tinbergen Rule' here (you need at least as many instruments as you do targets). A hopeless situation developing, which could be financially explosive for stable economy
Source: smh - 🏆 6. / 80 Read more »