Sunday, 9 February 2014

What will happen to interest rates?

The big question is whether the RBA will raise interest rates  soon?

In one corner is the Kouk.

In the other is Ricardian Ambivalence.

I am with Ricardian Ambivalence for all the reasons he states. I think fears about inflation are overblown for the reasons RA outlines.

Where I digress with RA is with fiscal policy. He thinks it should be tightened. Given Nominal GDP growth is forecast to be 3% both this fiscal year and next ( and this is less than half its trend rate of growth) then I would wait for Nominal GDP growth to get to trend and then tighten.

Just remember the only reason for tightening  is because of the income tax cuts given by Costello and then Swan as well as  the changes to the excise duties on oil!