It's All In the RBA's Hands

RBA

(A) What it should do (B) What it will do on Tuesday (C) Why will the RBA do that?

(A) What it should do

It should drop rates immediately to 0.5% to simply match UK and fellow OECD countries. The banks should immediately pass this interest rate drop on in full as banks have always done it in the past - at least up until the Rudd Government took what I believe was a failed action! The RBA should do this to stop interest rates from forcing up the Australian dollar with its negative effect on employment, tourism and exporting income.

(B) What it will do on Tuesday

Nothing!

(C) Why will the RBA do that?

The RBA lacks self-confidence. It has stated that its forecasts have been wrong so it prefers to wait and react late to negative events after they happen. So they will wait until the Australian dollar rises and the media starts squealing that real 10% under employment exists in Australia. Waiting for the media to point out that while American unemployment has halved since 2008, Australia’s have doubled. We know now that the Australian dollar will rise. How come the RBA doesn't?

Is it indeed the redundant bank of Australia, which should be merged back into Treasury? The real cost of "nothing" is a breach of its charter to maintain full employment. By keeping this pressure on the RBA we hope we will have the RBA looking after the unemployed in the country for the first time in years.

Future of Rates?

Compared to two years ago the latest round of wholesale funding's in Australia are coming in between 1% and 1.3% lower. Two things in this:

1. We have lower rates and they will be lower rates for longer as these loans are coming out now at six or seven year terms.
2. Again the Reserve Bank is asleep at the wheel and doing too little too late. There rate should have also come down and be now sitting at 0.5% giving us a lower Australian dollar, more exports and more tourists and rising Australian incomes.
3. OPEC have finally agreed to cut oil production. This should lead to an increase in oil prices and this in turn an increase in inflation. OPEC will do what Central Bank have been trying and failing to do.

Again for me it is not time to fix yet.

Regards,

Kevin Young Club Founder