Hint rate cuts! The most recession-proof country in modern human history can no longer afford it.

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Hint rate cuts! The most recession-proof country in modern human history can no longer afford it.

2019-02-09 09:17:27 474 ℃

How can we formulate a correct monetary policy? Lesson 1: Fighting the recession - Australian policymakers seem better at coping with the global financial crisis of 2008 than the United States or Europe, where they are quick to implement fiscal stimulus rather than switching to budget tightening as the economy recovers. The result is that although Australia's economic growth rate has declined, the economy has not really contracted. Just a few months after the recession caused by the financial crisis, Republicans in Congress began pushing for budget cuts, and European governments began to cut back, demanding strict austerity in heavily indebted European economies. However, Australia has invested heavily in low-income households and infrastructure, and there has been a heated debate on how to balance the budget.

also brings Australia an "economic miracle". In the modern history of mankind, no country like Australia has been able to avoid recession for more than 27 consecutive years. Even the global financial crisis in 2008, which ravaged the world, has not caused the country to experience two consecutive quarters of negative GDP growth. Despite the ups and downs of Australia's economy during the super-long economic expansion period of nearly 30 years, its economic growth cycle has not really disappeared. However, the slowdown in global economic growth has become a major obstacle for Australia.

Photo Source: Photograph Net

The Australian Central Bank sharply lowered its economic growth expectations

Daily Economic News reporter noted that, just one day after former Federal Reserve Chairman Jerren said that if the global economic growth slowdown affected the United States, the Fed might cut interest rates, the current governor of the Australian Central Bank (hereinafter referred to as the Australian Central Bank) Phi Lowe (hereinafter referred to as the Australian Central Bank) Lip Lowe also unexpectedly hinted at a rate cut in Sydney at the Australian National News Club event. In theory, he said, the RBA could cut interest rates as well as raise them. After Lowe's speech, the Australian dollar fell sharply against the US dollar, falling more than 100 points, or 1.45%, in the day, making the Australian dollar the weakest of all non-US currencies.

Photo Source: Sydney Morning Post

"If Australians are looking for jobs and their wages are rising faster, then there is reason to expect inflation to rise, and at some point it will be appropriate to raise interest rates. On the other hand... (Australia) The economy may be weaker than we expected, and people's income and consumption growth is disappointing. If unemployment continues to rise and there is no further progress in reaching inflation targets, it may also be appropriate to cut interest rates at some point in time. Lowe said. The Sydney Morning Post reported that although Australia's unemployment rate is very low, it has not translated into a sharp rise in people's wages. On Monday, local time, ANZ's closely watched job advertisement index showed its first negative growth in three years.

On Friday, local time (Feb. 8), the Bank of Australia lowered most of its growth expectations: in the year ending June, the Bank of Australia expects Australia's economy to grow by 2.5%, far below its previous forecast of 3.25%. Such a drastic reduction in economic growth expectations is not a disaster, but it is not a good sign for Australia, a miracle country that has not been in recession for more than 27 years.

The change of the cash interest rate of the RBA (Image Source: RBA website)

Bloomberg reported that the RBA's downward economic growth expectations can be attributed to Australia's weak household expenditure (related to falling house prices) and the continuing weak labor market. Of course, there are also market concerns about a slowdown in global economic growth. Lowe also added that if Australia's revenue and growth in the next few years are weaker than expected, the RBA may further cut interest rates. On Monday, the Bank of Australia maintained its cash rate (overnight lending rate, Australia's target rate) at its lowest ever level of 1.5%, and it has neither raised nor lowered interest rates in the past 30 months. The last time the interest rate changed (down) was in August 2016, and < strong > has not increased since November 2010. The fall in the Australian dollar in 2019 also reflects global concerns about Australia's economic growth, according to the Guardian. However, Lowe said that the Bank of Australia is not expected to make monetary policy changes very soon. "There is not enough reason to adjust cash interest rates in the short term," he said. "Lowe adds that despite the looming global risks, the global and Australian economies will grow well in the next two years, but the strength of the Australian real estate market and the growth of people's spending in the next few years will be the greatest uncertainty. However, Lowe is not sure what impact Australia's housing market adjustment will have on household consumption, but the RBA believes that the situation looks controllable after the sharp rise in house prices in recent years.

"What we see is that the housing markets in Sydney and Melbourne are controllable, and most Australian households will not change their spending habits because of short-term changes in wealth," adds Lowe. Analysts:

Interest rate cuts will bring more downward pressure to the Australian dollar

The Australian Financial Review (AFR) reports that when the Australian Central Bank turns to a neutral position on monetary policy issues, financial markets now expect the RBA to cut interest rates next year (i.e. the February 2020 meeting). Futures markets currently expect the RBA to cut interest rates at that time. Interest rate cuts of 25 basis points to 1.25%, this year the possibility of interest rate cuts is 50%. But some economists predict that the RBA will be forced to cut interest rates twice in the second half of this year after Australia's federal elections and before December. George Tharenou, an economist at UBS, predicts that Australia's cash interest rate will fall further and reach 1% by mid-2020. UBS said the change in the RBA's wording on interest rates was a "substantially moderate" attitude change. David Bassans, chief economist of Beta Shares, also revised his forecast of the Bank of Australia's cash rate for next year to 1%. Bassanis said he expects the Bank of Australia to cut interest rates once in August or November and again in February 2020. Alex Joiner, chief economist of IFM, predicts that the Bank of Australia will not raise interest rates during the year, but that "the global economy is slowing down, which will have an impact on the Australian economy". Jonah pointed out that major central banks around the world have lowered their expectations of economic growth. "But when the Federal Reserve, the European Central Bank and the Bank of Japan all become more moderate about monetary policy, how can the Bank of Australia stand alone?" David Llewellyn-Smith, chief strategist at MacroBusiness Fund, said that the views of the local stock market on the Australian economy had been artificially exaggerated due to the position of the RBA. "The Australian government may have to cut interest rates because the decline in house prices almost always drags the economy down, especially in Melbourne and Sydney, where house prices fall very fast." Said Llewellyn Smith. "We believe that the Bank of Australia will have to cut interest rates twice this year, which will bring further downward pressure on the Australian dollar." The Atlantic Monthly reports that at least part of the longest economic growth Australia is experiencing in modern human history is due to chance and luck: Australia's geographical location, the budgets of its neighbours, and the rich minerals hidden beneath the continent. But in any case, this is also due to the Australian government's sound and prudent policy, which means that Australia's economic miracle has indeed provided lessons for other countries and regions, including the United States.

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