Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Time to cut RBA rates, but easy does it

By Henry Thornton - posted Tuesday, 2 September 2008


Australia has suffered a period of gloomy reflection with indicators of household and business confidence falling sharply.

Economists have been widely quoted as effectively saying "the end is nigh". The end of the decade-and-a-half-long boom, that is. CommSec equities economist Savanth Sebastian said recently: "Rumours of the death of the Australian economy are overdone". (We are grateful to David Uren for this quote.)

Uren himself said: "Business has stunned financial markets by reporting a surge of investment in the June quarter and canvassing plans that would lift spending by more than a third in 2008-09 in signs the Australian economy is defying international turbulence.

Advertisement

"The planned increase in spending is the biggest jump in 26 years, and flies in the face of slumping business and consumer confidence."

Australia has a most resilient economy. Its generic tendency is to run too fast, not too slow. No Eurosclerosis here, comrades. The boom defied the Reserve Bank's rather feeble attempts to rein it in while Ian Macfarlane was in charge of monetary policy.

We all thought that current governor Glenn Stevens, known affectionately in privileged circles as "the Enforcer", would bring the economy to heel. "Had done" was the general judgment.

Subsequent to the capital spending surprise, the RBA reported slower growth of credit, but rather faster growth of "money".

Total credit provided to the private sector by financial intermediaries rose by 0.5 per cent over July 2008, following a rise of 0.4 per cent over June. Over the year to July, total credit rose by 11.2 per cent. Credit for housing has slowed to a bit below 10 per cent.

The Sunday Age's front page screamed "House sales tumble as slump bites". It quoted new figures that show a 44 per cent drop in house sales over the year and noted that Victoria's auction clearance rate had fallen below 60 per cent for the first time this year.

Advertisement

Similar figures for other cities are 51 per cent for Sydney, 43 per cent for Brisbane, 33 per cent for Adelaide and 50 per cent for Canberra. Melbourne's reaction reminds Henry of the angst in 1991 when even the trams were touting for business, allowing Henry to declare: "the policy is working".

There will presumably be quiet satisfaction as the board of the Reserve Bank meets today. The policy of restraint is working. To be sure, tightening was too gentle and too slow, but now the long-awaited easing can begin.

The unexpectedly strong business investment intentions data should mean the easing is modest and far from rushed.

  1. Pages:
  2. 1
  3. Page 2
  4. 3
  5. All

First published in The Australian on September 02, 2008 and on Henry Thornton's blog.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

1 post so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Henry Thornton (1760-1815) was a banker, M.P., Philanthropist, and a leading figure in the influential group of Evangelicals that was known as the Clapham set. His column is provided by the writers at www.henrythornton.com.

Other articles by this Author

All articles by Henry Thornton

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Henry Thornton
Article Tools
Comment 1 comment
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy