21 May 2024
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What the RBA should do today

Peter Switzer
7 May 2024

It’s RBA rates decision day! I get it, and everyone who knows me and has a loan (or has kids with loans and are petrified that interest rates will go up again) wants me to tell them that interest rates won’t rise today.

So, that’s what I’ll say. Unfortunately, I could be wrong! Why? That’s simple, I’m qualified to tell you what the Reserve Bank should do with the cash rate but I’m not a psychologist with a major in soothsaying.

On one hand, this is what economists who go chasing headlines are attempting to be. On the other hand, they’re effectively saying that the RBA should raise rates.

What we have on rates is a guessing game between economists. The reality is that none of these guys and gals are expert-guessers. How do I know? Well, I know most of the doyens of rate-guessing and none of them have papal infallibility, which must be one of the greatest misnomers of history!

So, what should the RBA do today? Try these intelligent steps:

  1. Take a leaf out of the US Fed’s book and exhibit caution on the subject of raising rates.
  2. Talk tough and warn us all if we keep spending and potentially feeding inflation then rates will rise.
  3. Explain that if the economic data over the next two or three months screams that the economy isn’t slowing down, unemployment isn’t increasing and the CPI isn’t falling, then expect (wait for it) rate rises! Yep, if the RBA gives one rise, history says they’ll go for a second, at least!


Why should the RBA wait before shifting rates either up or down? Try these, important facts:

  1. The AMP Inflation Pipeline Indicator, which leads the CPI by a few months, is in the 2% region, as the blue line in the chart below shows.

  1. The March CPI rise to 1% from 0.8% was a seasonal spike. “Fortunately, our Pipeline Inflation Indicator is still pointing to lower inflation ahead and the March quarter inflation rate was boosted by seasonal increases for things like health and education, so inflation should slow again in the current quarter much as it did in the December quarter,” Shane Oliver explained, after the numbers were released.
  2. Unemployment is too low at 3.9%, but it is rising.
  3. Building approvals are 7.3% lower through the year.
  4. On retail, the SMH’s Rachel Clun reported the following six days ago: “Retail spending fell by 0.4 per cent in March, according to the Australian Bureau of Statistics, taking retail spending growth over the year to the end of March to just 0.8 per cent – the weakest annual growth on record outside the pandemic and the introduction of the GST in 2000.”
  5. The consumer confidence index has held below 100 for over two years, the longest since the early-1990s recession, indicating pessimists heavily outweigh optimists.
  6. Business confidence is better than consumer confidence but the NAB reading is at 0 but was 23 in October 2021 and 12 in November 2020, when we were fighting the Coronavirus.

I could go on, but I think the evidence above says that the RBA should wait a few months before raising or cutting. That’s my story and I’m sticking with it. Clearly, if two more CPI readings indicate that we need higher rates to burn out inflation, then the RBA should do its darndest.

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