RBA punting on interest rates for Melbourne Cup day

Monday, 4 November 2013  Features

Economists from UNSW's Australian School of Business are available to give their commentary and analysis of the Reserve Bank's next interest rate move on Tuesday.

James Morley, a Professor of Economics at UNSW's Australian School of Business, is also a member of the RBA Shadow board. He said "there is no compelling case for further cuts to an already low policy rate - after all, headline inflation remained within the target range at 2.2 per cent in Q3, while the unemployment rate dropped a bit to 5.6 per cent in September."

In terms of the timing of any increase in the policy rate, he adds "the current balanced economic conditions allow for further monitoring of property markets before taking action to dissipate the rising froth. However, if domestic and international economic conditions were to show more consistent signs of improvement, the policy rate should be returned to neutral in reasonably short order."

Tim Harcourt, the J.W. Nevile Fellow in Economics at the Australian School of Business said "I'm betting against another interest rate cut by the Reserve Bank in a Melbourne Cup week for the first time in several years - but then again, I've laid money against it before, and I've been proved wrong. The RBA is certainly treading a fine line between cutting interest rates - which might stimulate a bubble - and increasing them - which would give a boost to the already strong Australian dollar."

The central bank's latest foray into the touchy subject of a housing bubble was a speech by RBA governor, Glenn Stevens last week, when he said "the property market dynamics are worrying."

Tim Harcourt has responded "home owners and market participants will probably be able to enjoy race day without having to keep an eye on the RBA interest rate move, when the bank it makes its monthly announcement tomorrow. Indeed - when you are punting on this year's Melbourne Cup, have a bit of sympathy for Australian export businesses who have to make their big bets on international markets in the Asian region, and gamble with exchange rates which swing with moves of interest rates."

He compares the countries in Asia to runners in the Melbourne cup. "If you look at a form guide to Asia, countries vary from horse number one, the Great Samurai, which represents the Japanese market. The Yen has been on an upward trend, helped by reduced Australian interest rates. Others in the race are Passionate Tradition, representing Korea - a powerful galloper, where an industrious approach has been helped by the Aussie dollar. New Dynasty, representing China and Taj Mahal, representing India are all keeping an eye on what happens to exchange & interest rates - and the bets are against an RBA move right now, but maybe early next year."

For further comment call Tim Harcourt on 0408 485 479 or James Morley on 02 9385 3366.

Media contact: Julian Lorkin: 02 9385 9887