Readers of the Australian Financial Review (AFR) would not have missed a number of recent articles by journalists suggesting that the Reserve Bank have gone too low with the current cash rate of 2.5 percent. There have been a number of articles suggesting that the betting is about even money that the next rate adjustment could be upwards.
One big problem is that one of the key effects the Reserve was trying to avoid has now happened. House prices are trending up. Not so much in Western Australia, but certainly in New South Wales and Queensland.
But, on the other side of the coin, the Australian dollar is still well above the ‘perfect’ 86 cents per US$1 that was the target for the Reserve. Today the dollar is still up in the relative lofty heights of 93 cents.
Also the unemployment rate across Australia continues to climb and is threatening to go above the 6 percent mark. A further reduction in the cash rate might help keep the unemployment rate stable, if not lower it slightly. Maybe. Possibly.
In addition the big retailers continue to announce declining profits. Almost all of the big retailers have now suffered three years of end-on-end profit declines.
On top of this household debt is climbing again.
And every reduction in the cash rate hurts all those people who are retired or are semi-retired.
What a mess. I am glad I don’t sit on the board of the Reserve Bank.