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RBA a slow learner

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by Peter Switzer

The Reserve Bank (RBA) did what was expected. The economists said it would, but that doesn’t mean it has done what it SHOULD have done! No way!

Even as an economist I can admit that this rate cutting caper is a guessing game — the amount of science in it is akin to doing the form at the races, albeit that it might be done by a racing guru such as Gai Waterhouse or Max Presnell.

We know that because the RBA has been backing losers for years, despite it credentials and smart people.

I could be wrong, but you have to note that the ANZ job ads have fallen 11 months in a row and ads for new jobs are down 18.4 per cent! Also the manufacturing sector has been contracting for 11 months — gee that’s a coincidence! — and the services sector, which is the biggest employer by miles, has contracted for 12 months!

Bill Evans, the chief economist at Westpac, says rate cuts have had a disappointing impact on consumer confidence.

Why wait?

Meanwhile, the ANZ economics team thinks the cash rate goes to two per cent this year. In yesterday’s statement, the RBA left the door open on a rate cut, so why wouldn’t they cut early rather than late?

Why wait for the jobless rate to rise? Why wait till the budget is a bigger than needed deficit?

Why wait to help the dollar slip a bit? And by the way, the currency did drop into the 103 US cents region after the RBA hinted that another cut may come.

One dumb economist said the RBA “can afford to wait and see”. Well, a hell of a lot of businesses can’t wait, and given they are the employers of the country, it’s time the RBA and Glenn Stevens got real.

Don’t get me wrong. I hope Glenn and the RBA board are right and I’m wrong, but I doubt it, and if they decide in say two months time they have to cut, I will ask what was so risky about helping confidence really turn the corner.

There are some positive signs out there, but they’re only green shoots. They need some watering and maybe some fertilizer, which needs to come from the Government. But that’s another story!

Wall Street positive

Happily, Wall Street is remaining positive with the Dow having a shot at its all-time high of 14,164.53, however, we’re moving towards the time of year when markets can get skittish and Europeans can really annoy markets.

Given all of that, with an election now on September 14, the time to stimulate this slowing economy is now, not when the ‘you know what’ hits the fan! I don’t know how long we can cope with this slow learning RBA.

For the record, the Dow was up 99.22 points or 0.71 per cent to 13,979.3 and the S&P 500 gained 15.58 points or 1.04 per cent to 1511.29.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, February 06, 2013

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