Yesterday the RBA governor ruled out any interest rate cuts in 2026. This is getting into Phillip Lowe territory. She might be right however she might be wrong. We are in unsure territory as I emphasised yesterday. The Latest quarterly CPI number might well be a rogue number. It may not. We won't know for a while. The new CPI series will have operating problems before it is smooth.
It makes sense to leave rates where they are given all the uncertainty. Ruling out any cuts next year only means you are very certain of the data. Given how wrong the RBA (and the rest of us) have been this year this is very courageous of the RBA. I might note most business surveys have inflation falling still.
Let us assume that the CPI numbers come back to what we thought pre-quarterly release. Then rates could fall but only to 3.25% which is the neutral rate.
Monetary policy is mildly contractionary whilst fiscal policy is mildly expansionary.
Data will be all important next year and the RBA won't know more than anyone else.
It will be an interesting year.
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