Tezza takes stock

Posted by

While the shadow governor’s term might have expired, the Herald Sun’s Terry McCrann does write a worthwhile wrap after the fact.

There are, however, two things i think McCrann has got wrong:

– first is that it does all come down to inflation. The reason the board has emphasised activity is that activity (and most especially the unemployment rate) is the best leading indicator of inflation. Weaker activity forecasts lower inflation. That is why the board said that if activity weakens materially that the inflation outlook would provide scope for further easing.

However, if it turns out that inflation really is running at ~2%y/y pace, and activity is as expected, the board will almost certainly ease rates, as they will have to lower their inflation forecast from their 2.5% target.

– second, the hold at 4.25% was not a decision to LIFT interest rates. So do not fret that the RBA will hike if the banks do not. If demand for intermediation falls, banks should be less profitable and should bear more of the cost of any increase in funding costs. That is how a competitive market works, and that is what is happening

In any case, bank debt is rallying every day, so the funding argument is evaporating. Right now, NIM movements (while uncomfortable for equity holders) are within the bounds of normal, given market conditions.

The RBA will respond if banks tighten credit – but they do not need to be riding shotgun for the majors, and sooting at a NIM forecast.


  1. These articles ( I add the articles that said the RBA WOULD cut) should surely end any claim that McCrann gets inside information from RBA staff.
    He would never make such elementary mistakes if he did.

    Under Stevens Journalists simply get the same story everyone else gets no, more no less, from RBA staff.
    Good Journos like Gittins or Mitchell can read between the lines.

  2. Great call yesterday. I don’t necessarily agree that housing is stabilising, but time will tell.

    Keep up the great blog Ricardo, prob the best Aussie-centric blog out there.

    1. thanks mate. very kind :)

      we will see about housing. if bank funding stress really picks up, it could cascade through the financial sector and hence the asset class – but things seem okay just now.

      1. Would the moves by WBC and ANZ to independently raise their mortgage rates potentially trigger an RBA cut in the absence of bad news?

Comments are closed.