Latest news with #MonetaryPolicyBoard
Yahoo
4 days ago
- Business
- Yahoo
Analysis-RBA's new policy board comes with added unpredictability
By Wayne Cole SYDNEY (Reuters) -Australia's central bank has a problem communicating that has injected an element of unpredictability into interest rate policy when global uncertainty is already high, and its proving costly for investors. It all stems from an April shake up at the Reserve Bank of Australia that shifted rate-setting power entirely to a new nine-member Monetary Policy Board. At just its second meeting in May, the board decided to cut cash rates by a quarter point to 3.85% and sounded more dovish than analysts expected, even briefly considering an easing of 50 basis points given the uncertainty caused by U.S. tariffs. This, combined with some soft economic data, led investors to wager heavily on another cut in July while a Reuters poll of 37 economists found 31 expected an easing. Crucially, investors were encouraged to pile into these positions because the RBA did not push back on expectations, as they had often done in the past. Imagine their surprise, then, when the MPB held rates steady in a rare spilt decision of six to three, leaving many investors with painful losses. Speaking to the media after the decision, RBA Governor Michele Bullock explained that the bank could no longer offer guidance because the rate decision was up to the board alone and it could not be pre-empted. Essentially, the RBA had changed the way it communicates to markets, without telling those markets it had changed. "Since no single MPB member can front-run the whole Board, future inter-meeting communication is unlikely to endorse or push back against market pricing," said Luci Ellis, chief economist at Westpac and a former assistant governor at the RBA. "This implies that markets will be surprised more often than in countries like the United States, where the central bank puts more weight on avoiding surprising the market." RBA A MINORITY ON ITS OWN BOARD Since then, a benign inflation report now has investors equally convinced the MPB will cut rates to 3.60% at its next meeting on August 12, in part on the hope it would not want to shock twice in a row. Yet the MPB's unusual composition makes for added uncertainty as it has just two RBA officials, along with a top Treasury official and six part-time external members with backgrounds in economics, business and banking. The latter are appointed by the Treasurer of the day with input from the RBA. Markets have little to no idea what the views of these six are, and that is unlikely to change as there are only vague plans for each to make one public appearance a year. It is now quite possible RBA board members could find themselves out-voted on rates, yet the governor would still have to front the media to defend a decision they did not agree with. And, since the votes are unattributed, there might be times when it would be impossible for investors to know if the central bank had been overturned. "It's even easier for the governor to be voted down because they're clearly outnumbered by externals members," said Jonathan Kearns, chief economist at Challenger and a former top official at the RBA. "I think the board is probably feeling now more emboldened to disagree with the governor." "It does add a little bit more risk into things, but it's up to the RBA to provide good analysis and well formulated recommendations that are convincing to the external members." The new format marks the RBA as something of an outlier in global central banks. The Fed and European Central Bank have boards made up of only central bankers, while the Bank of England has five central bankers and four professional economists on its board of nine. Votes of individual board members are made public for the Fed and the BoE, which have both become more divided in recent months. Speaking to an economic forum recently, RBA Deputy Governor Andrew Hauser conceded the July decision was less predictable for markets than it should have been and said the board was still "feeling our way" on policy. He insisted this unpredictability would not be the new norm, but cautioned there would be "shocks from time to time." Investors betting on a rate cut are fervently hoping next week will not be one of those times. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
4 days ago
- Business
- Reuters
RBA's new policy board comes with added unpredictability
SYDNEY, Aug 11 (Reuters) - Australia's central bank has a problem communicating that has injected an element of unpredictability into interest rate policy when global uncertainty is already high, and its proving costly for investors. It all stems from an April shake up at the Reserve Bank of Australia that shifted rate-setting power entirely to a new nine-member Monetary Policy Board. At just its second meeting in May, the board decided to cut cash rates by a quarter point to 3.85% and sounded more dovish than analysts expected, even briefly considering an easing of 50 basis points given the uncertainty caused by U.S. tariffs. This, combined with some soft economic data, led investors to wager heavily on another cut in July while a Reuters poll of 37 economists found 31 expected an easing. Crucially, investors were encouraged to pile into these positions because the RBA did not push back on expectations, as they had often done in the past. Imagine their surprise, then, when the MPB held rates steady in a rare spilt decision of six to three, leaving many investors with painful losses. Speaking to the media after the decision, RBA Governor Michele Bullock explained that the bank could no longer offer guidance because the rate decision was up to the board alone and it could not be pre-empted. Essentially, the RBA had changed the way it communicates to markets, without telling those markets it had changed. "Since no single MPB member can front-run the whole Board, future inter-meeting communication is unlikely to endorse or push back against market pricing," said Luci Ellis, chief economist at Westpac and a former assistant governor at the RBA. "This implies that markets will be surprised more often than in countries like the United States, where the central bank puts more weight on avoiding surprising the market." Since then, a benign inflation report now has investors equally convinced the MPB will cut rates to 3.60% at its next meeting on August 12, in part on the hope it would not want to shock twice in a row. Yet the MPB's unusual composition makes for added uncertainty as it has just two RBA officials, along with a top Treasury official and six part-time external members with backgrounds in economics, business and banking. The latter are appointed by the Treasurer of the day with input from the RBA. Markets have little to no idea what the views of these six are, and that is unlikely to change as there are only vague plans for each to make one public appearance a year. It is now quite possible RBA board members could find themselves out-voted on rates, yet the governor would still have to front the media to defend a decision they did not agree with. And, since the votes are unattributed, there might be times when it would be impossible for investors to know if the central bank had been overturned. "It's even easier for the governor to be voted down because they're clearly outnumbered by externals members," said Jonathan Kearns, chief economist at Challenger and a former top official at the RBA. "I think the board is probably feeling now more emboldened to disagree with the governor." "It does add a little bit more risk into things, but it's up to the RBA to provide good analysis and well formulated recommendations that are convincing to the external members." The new format marks the RBA as something of an outlier in global central banks. The Fed and European Central Bank have boards made up of only central bankers, while the Bank of England has five central bankers and four professional economists on its board of nine. Votes of individual board members are made public for the Fed and the BoE, which have both become more divided in recent months. Speaking to an economic forum recently, RBA Deputy Governor Andrew Hauser conceded the July decision was less predictable for markets than it should have been and said the board was still "feeling our way" on policy. He insisted this unpredictability would not be the new norm, but cautioned there would be "shocks from time to time." Investors betting on a rate cut are fervently hoping next week will not be one of those times.
West Australian
05-08-2025
- Business
- West Australian
Dimitri Burshtein & Peter Swan: If RBA slashes rates this month, it will be giving in to political pressure
It may be heresy to say, but the case for an official interest rate cut at the coming RBA monetary policy board meeting is exceptionally weak. Austrian born economist Friedrich Hayek once observed that 'the root and source of all monetary evil is the government's monopoly on money.' In Australia, that monopoly takes form in the RBA — an institution notionally independent, but increasingly susceptible to political pressure. Following recent data which showed inflation remaining within and not below the RBA's target band, the usual chorus of economic commentators and political actors have launched into a ritualistic call for a rate cut. And as the August 2025 Monetary Policy Board meeting approaches, these calls are growing in both volume and vehemence. For the RBA to heed these demands would not simply be an error but it would represent a further descent from a disciplined monetary authority into a compliant servant of political convenience. The RBA's mandate is neither ambiguous nor advisory. It is enshrined in legislation: to ensure price stability, full employment, and the economic prosperity of the Australian people. Nowhere in the RBA Act is there an obligation to underwrite misguided fiscal policies or to provide political cover for governments unwilling to confront the consequences of their own policy malpractice. Yet that is precisely what a rate cut would amount to at this juncture. A backdoor bailout of bad fiscal and regulatory policy suppressing economic growth and productivity all under the guise of independent monetary policy. Evidence of persistent economic pressures across key sectors of the economy abound. These pressures are not being driven by private sector exuberance but by reckless fiscal expansion at all three levels of government. Governments have overstimulated demand while constricting supply through over-regulation, sky high energy costs, and an expanding public sector that absorbs available labour. In this context, a rate cut would simply exacerbate the underlying causes of Australia's economic malaise by further distorting the allocation of capital and labour, rewarding inefficiency while penalising prudence. There is equally no compelling case for monetary stimulus based on labour market data. Unemployment remains historically low. And while there are tentative signs of a slowdown in private sector hiring, the slack is being absorbed by growth in the public and care economy. If the RBA cuts rates now, it will not be reviving a flailing private sector. It will be validating a dangerous economic realignment: one that favours public consumption over private investment, short-term palliatives over structural reform, and ideological convenience over empirical rigour. Prevailing arguments for a rate cut are based in the flawed logic of the Phillips Curve — the mid-20th century economic model that posits a trade-off between unemployment and inflation. But the Phillips Curve has failed repeatedly. It failed to anticipate stagflation in the 1970s, failed to explain the low-unemployment, low-inflation paradox of the 2010s, and fails to grasp the unique drivers of today's price instability. Continuing to base policy on such a model is akin to navigating a storm with a broken compass. Real world outcomes have diverged too often from its predictions to treat it as a reliable guide. To make matters worse, Australia's currency has declined by more than 7 per cent over the past five years. In a country that imports the majority of its essential goods — from fuel to food, electronics to pharmaceuticals — a weaker dollar has a direct effect on household costs. A rate cut now would almost certainly further accelerate currency depreciation, amplifying imported inflation. This risk alone should give any responsible policymaker pause. Yet the calls for easing continue, not because the data demands it, but because habit, ideology, and political cowardice conspire to make it seem palatable. A rate cut in August would additionally punish savers, reward speculators, erode the purchasing power of the dollar, and send an unmistakable message that the RBA no longer takes its inflation target seriously. Worse, it would reinforce the delusion that the bank exists to smooth every bump in the economic road, regardless of whether that road was poorly built to begin with. This is not just an Australian phenomenon. Since the tenure of Alan Greenspan in the US, central banks around the world have morphed from guardians of price stability into crisis managers and economic nannies. The so-called 'Greenspan Put', the expectation that central banks will always ride to the rescue at the first sign of market discomfort has corrupted monetary policy, undermined fiscal discipline, and left global economies addicted to cheap credit. The result has been decades of asset bubbles, rising inequality, chronic debt dependence, and an institutional inability to endure even mild economic correction. Monetary policy must return to first principles: price stability first; everything else second. If the RBA hopes to preserve its credibility, its independence, and its very relevance, it must hold the line, ignore political pressure and not cut the official interest rate. Dimitri Burshtein is a principal at Eminence Advisory. Peter Swan AO is emeritus professor at the UNSW-Sydney Business School.
Korea Herald
10-07-2025
- Business
- Korea Herald
BOK halts easing cycle to counter soaring home prices
Central bank keeps rates steady, citing debt risks over growth concerns The Bank of Korea held its base rate steady Thursday, aiming to rein in mounting household debt amid a resurgent property market. The central bank maintained the rate at 2.5 percent. The rate freeze was supported by all six members of the Monetary Policy Board excluding BOK Gov. Rhee Chang-yong, whose individual vote is not disclosed. Amid the financial authorities' move to impose strict lending regulations, such as capping mortgage loans at 600 million won ($437,000) in the Greater Seoul area, the BOK has also signaled its intent to curb the debt surge by keeping the base rate unchanged. "Housing prices, especially in the Seoul metropolitan area, are rising faster than they did in August last year," BOK Gov. Rhee Chang-yong said at a press conference held shortly after the rate-setting meeting. 'The policy priority lies in stabilizing the market expectation and managing household loans to prevent a rise in housing prices,' Rhee said. A sharp increase in household loans could pose a threat to the country's financial stability by heightening the risk of nonperforming loans, while also dampening overall consumption. 'The mounting household debts entail many side effects. The amount of the loan has already neared a tipping point that poses constraints on consumption and overall growth,' Rhee said. Driven by increased housing transactions and soaring home prices, outstanding household loans at banks stood at 1,161.5 trillion won at the end of June — the largest monthly gain in 10 months — according to central bank data released on the previous day. "The BOK has long held the view that the scale of a rate cut should be carefully managed so as not to fuel further increases in property prices," Rhee said. The rate hold puts the brake on BOK's recent rate-cut cycle. Since October, the bank has been alternating between rate cuts and holds, bringing down the policy rate by a cumulative 1 percentage point to support the sluggish economy. The widening Korea-US interest rate gap, now at a record 2 percentage points, is another key factor in the central bank's cautious stance. With the US Federal Reserve expected to hold its rate this month, an additional rate cut by the BOK would have widened the differential to 2.25 percentage points, raising concerns over foreign exchange market volatility. "It is not that the Korea-US rate gap should not exceed a certain level mechanically," Rhee said, underlining that the central bank does not adhere rigidly to a specific threshold in setting its policy. "While the dollar is expected to remain on a weakening trend, we will need to closely monitor the situation, though Korea's dependence on US monetary policy has lessened compared to the past." Though the BOK kept the rate steady Thursday, market analysts viewed the central bank remains on track for a rate cut cycle. 'The Korea-US rate gap is concerning, but solely waiting for a rate reduction from the US is not viable. The external policy burden is expected to ease significantly once the tariff negotiations scheduled for Aug. 1 are confirmed,' said Yoon Yeo-sam, an analyst at Meritz Securities. 'While the rate cut could be delayed until October as the BOK assesses the impact of the real estate policies, the possibility of a rate cut in August remains high, provided the low-growth trend does not change significantly,' Ahn Ye-ha, an analyst at Kiwoom Securities, viewed.
ABC News
09-07-2025
- Business
- ABC News
Former top RBA official says it risks falling into persistent policy error
Millions of mortgage borrowers are not the only ones disappointed by the Reserve Bank's decision to not cut interest rates this month. Former RBA assistant governor Luci Ellis, who is now Westpac's chief economist, described the decision — by a six-to-three majority of the monetary policy board — to wait before cutting rates again as "uncharitable". Westpac and its customers rely on her interpretation of what the Reserve Bank Monetary Policy Board will do with interest rates from meeting to meeting. And, although she suspected the Reserve Bank might wait until August to cut interest rates again, she still switched her forecast to a July interest rate cut after weak monthly inflation figures were released by the ABS a fortnight ago. "One of the reasons I [originally forecast the next interest rate cut in August] was a sense that … they would wait, thinking that they wouldn't use the full information set available to them now," she explained. In other words, Dr Ellis assumed the Monetary Policy Board would wait for the more comprehensive June quarter inflation data before cutting interest rates. "It felt a little bit uncharitable [to forecast that]," she said. However, the majority of six opted for a cautious approach, waiting for that more detailed data to confirm that inflation was falling in line with the Reserve Bank's forecasts, which have it hitting 2.6 per cent — close to the mid-point of the 2–3 per cent target. In a LinkedIn post late on Tuesday, Dr Ellis expressed some frustration over the RBA's decision to leave the cash rate unchanged. "Why on earth wait?" she wrote. In the post-meeting statement, the RBA explained that "the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis". However, Dr Ellis found that explanation unconvincing. "I think it was quite an unconfident call by the RBA not to move this time," Dr Ellis said. "Unless they really think they might not move in August, it wasn't clear why [the RBA] didn't already have enough information to make that decision." The Reserve Bank Monetary Policy Board said it would "be attentive to the data and the evolving assessment of risks to guide its decisions". "In doing so," the board said, "it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market." The next ABS Labour Force data will be published on July 17, while the June quarter CPI data will be released on July 30. But Dr Ellis argued the RBA was focused almost exclusively on the quarterly inflation data. "This has been the rounds that we've been on for the last 18 months," she lamented. "It shouldn't, in some sense, come down to one number, but each quarter it has. "I mean the number of times that our [interest] rate calls have hinged on [the question], 'Was there a surprise [in that CPI data]?' — it's kind of a clunky way to have to make your [interest] rate forecasts. "But on the other hand, they're at the point where they're trying to work out if inflation really is comfortably inside the 2 to 3 per cent target range, whether it's going stay there, whether it's going to get to that 2.5 per cent [inflation] rate." Dr Ellis believed that was not the best way to make monetary policy decisions. "It's going to keep coming down to the quarterly CPI, and it will mean that people focus so much on that number instead of on the broader assessment of the economy," she cautioned. "And that's a shame." Investment firm, Deutsche Bank, similarly took aim at what it perceived as contradictory language in the RBA's communications. "The [RBA's] post-meeting statement notes that: 'While recent monthly CPI Indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were, at the margin, slightly stronger than expected,'" chief economist Phil O'Donaghoe noted. "We struggle to interpret what the RBA means with this phrase. There were a few economists, however, who anticipated the central bank's decision to leave interest rates unchanged. Betashares chief economist David Bassanese was one of them. "As I have consistently argued in recent weeks, the case to cut rates today was never compelling," he noted. "While consumer spending remains stubbornly weak, the labour market remains strong. "And while the recent monthly CPI report showed a large decline in annual trimmed mean inflation to 2.4 per cent, monthly reports are notoriously volatile. "Only the month prior, trimmed mean annual inflation was at 2.8 per cent." Underlying inflation at 2.8 per cent indicates price growth more broadly in the economy could easily move outside the RBA's 2 to 3 per cent comfort zone. "To my mind," Mr Bassanese added, "the RBA [will] wait for the more reliable quarterly CPI report later this month to confirm a decline in underlying inflation before cutting rates again in August." Dr Ellis, however, argued this approach could push the RBA into chronic policy error. "I think where there is a risk partly around the idea that maybe the RBA is seeking so much certainty in the data that they end up continuously behind the curve more generally," she warned. "So if it forms into a pattern of behaviour where the RBA doesn't have the courage of its analysis, isn't willing to make a forecast that is anything other than locked in based on backward-looking data, that would be a problem. "But it's not what we're seeing yet."
