RBA's rate cut
These figures are extracted from RBA's website, showing its rate cut progress since the collapse of Lehman Brothers last September.
| Effective Date | Change in cash rate (Per cent) | New cash rate target (Per cent) | |
|---|---|---|---|
| 8 Apr 2009 | -0.25 | 3.00 | |
| 4 Feb 2009 | -1.00 | 3.25 | |
| 3 Dec 2008 | -1.00 | 4.25 | |
| 5 Nov 2008 | -0.75 | 5.25 | |
| 8 Oct 2008 | -1.00 | 6.00 | |
| 3 Sep 2008 | -0.25 | 7.00 | |
On Tuesday 8th April, the RBA announced to cut its official cash rate by 25 basis points to 3 per cent, the lowest rate in 49 years, following the two-month pause standing at 3.25 per cent. Most economists believe that February's cut was the last of the big reductions. In fact, in this time the RBA is likely to take a more modest adjustment. The bank's governor Glenn Stevens possibly won't want to make further big strides in rate cut unless things get unexpectedly worse even though the bank is expected to cut rates by a further 50 basis points by the end of the year.
In terms of monetary policy, together with $7.1 billion tax cuts last July, making families about $1000 better off over one year, the RBA's rate cuts since last September are working in the same way to put cash into households. Importantly, the official rate cut has reduced $800 a month off the repayments on a standard $250,000 mortgage over 25 years. As a result, consumer sentiment, especially in housing sector, is improving sharply, reflected in an 8.3 per cent rise in consumer confidence in April. Housing finance figures also show a 0.4 per cent rise in lending in February.
However, when some economists forecast that the recession is under way, the Treasury seemed to be more pessimistic when insisting on the technical definition that there must be at least two consecutive quarters of economic contraction before the actual recession. So the Reserve Bank would like to wait until the actual recession and see whether recovery is in prospect before making any further moves on rates.
Government's spending
On the other hand, the government's borrowing is rising considerably to finance its spending, handouts and capitals works. Lets look at some of its recent welfare payments:
- October 2008: $10.4 billion cash payments and home-buyers boost
- November 2008: $6.2 billion subsidies for the car industry
- January 2009: $30 billion guarantee for RuddBank
- February 2009: $42.5 billion for bonuses, pink batts and schools
- April 2009: $43 billion broadband plan
When the global economy is shrinking faster than first thought and many economists are more bearish to forecast its trough, the Australia's $200 billion in debt is about to run up. This raise a little wondering that Lindsay Tanner, the Finance Minister, should look for ways to save rather than spend cash and Kevin Rudd should be more careful when he chooses who to help. (The biggest casualties of the recession, indeed, were those who lost their permanent jobs with little hope of re-entering the workforce. And what is behind that 'human tragedy' (as Swan once said) is the structural change in the workforce after any recession, making the higher proportion of part-time employees, which is never recovered to its level before that recession.)
In short, the Government has to spend more wisely to help those who feel the economic downturn most.
"$200 billion in debt is about to run up" - inevitable.
ReplyDeleteYep, that's right!
ReplyDelete