What other things make the case for cutting rates pretty clear?

Well lets looks at household spending.

The most recent GDP figures showed that in the 12 months to September last year household consumption (which is everything we spend money on, from shopping to buying cars to paying bills) rose just 0.4% in real terms (ie taking out inflation).

Usually growth of 3.0% is considered a nice average increase.

So we are not buying a lot of stuff. And if you include population growth then the amount each household spent in the year to Sept 2023 actually fell 2%.

That ain’t good. And the amount we are buying “per person” is much lower than is was when the RBA began cutting rates, and roughly back where it was in 2019.

That is not the sign of a booming economy.

Stepping away from interest rates for a moment: Amnesty International has branded the latest move to send stateless former immigration detainees to Nauru as a cruel “backdoor deportation scheme”.

On Sunday, Home Affairs Minister Tony Burke announced he’d struck a deal with the Nauruan government to take members of the cohort released after the NZYQ High Court ruling – which found indefinite detention to be unlawful.

Mr Burke revealed three of the former detainees – some with much-publicised criminal records – have already been granted visas to live freely in Nauru. 

Amnesty International today described the deal as a “blatant attack on the human rights of people seeking protection”.

“After everything these individuals have endured—the trauma, the health struggles, the fear of persecution—the absolute last thing they should face is deportation,” said Amnesty International’s Australian Refugee Rights Campaigner Zaki Haidari.

“The Labor government must put an immediate stop to these deportations. Australia must uphold its international obligations, ensure humane resettlement pathways, and guarantee that no refugee or asylum seeker is placed at further risk of harm.”

Sure!

The RBA has an agreement with the government to aim for a target inflation range. This is set out in its “Statement on the Conduct of Monetary Policy” which was last agree in December 2023.

It says “The Reserve Bank Board and the Government agree… that an appropriate goal is consumer price inflation between 2 and 3 per cent”

The big thing there is “consumer price inflation” not the underlying inflation, not the trimmed mean or any other measurers, but the CPI.

And right now the CPI is 2.4% – so in the bottom half of the range.

In the December quarter the CPI rose just 0.2%… which would translate to an average growth of 0.8% – ie way below what the RBA targets.

There are a few economists out there saying that the CPI is only “measured” inflation and is not “real” because the CPI is affected by things like the govt giving everyone an energy supplement.

They want the RBA to only care about underlying inflation which is at 3.2% – ie above the target range.

Problem for them is underlying inflation has come down in the past 9 months from 4.0% to 3.6% to 3.2%. So, it is hardly a worry. Also in the December quarter it also only rose 0.5% which translates to an annual rate of 2.0%.

So if you are targeting inflation of between 2% and 3% you cannot really argue that we are not now there.

It’s now been 4 years and 3 months since the last rate cut in November 2020.

The last time we went that long without a rate cut was the 6 years and 9 months form Dec 2001 to Sept 2008, during which time we were in the middle of a major 1 in a hundred year mining boom. Are we in the middle of such a boom now? No. No we are not.

But isn’t this super political?

I mean, yes. Of course it is. But it ALWAYS is. And given the figures, not cutting rates is actually the MORE political decision.

The next RBA board meeting won’t be until April. That will most likely fall during the election campaign. It is also the first meeting with the newly installed second RBA board of ‘experts’ to advise the board making the cash rate decision (like they didn’t have the best experts in the game already, working with the RBA)

This second board of economists will likely make things even more political, because whether they want to believe it or not, economists are not mythical creatures completely devoid of political ideologies, influenced solely by facts, figures and data. Economists choose the school of economics they want to invest in and then a lot of them pretend that social science is a universal law. (The market would NEVER price gouge! It’s always right!)

There is also the thought that this board, having been selected by Jim Chalmers, will not want to seem like they are favourable to him or the government and therefore have even more reason not to move during the election campaign. RBA boards don’t like to move during election campaigns if they can help it – in fact they usually prefer just to turtle as much as possible to avoid even the smell of being considered political.

But like 2022 when it was left a bit too late, leaving no choice but to raise rates in the May election campaign, the board has seemingly left it a bit too late NOT to cut rates this time round. Traditionally, the bank usually does a couple of interest rate cuts in a row. And not having a March meeting in this new schedule leaves the April meeting as the next cut. Given that history it would be more political to not cut in April, election campaign be damned!

Well first off, it would start to undo the damage of its belief that inflation has been due to us all having so much money that we have been out spending like sailors in town after a long trip and sea and after having drunk rather more than a few shots at the local tavern.

The rate rises since May 2022 have accounted for nearly half of the increase in the average employee household’s cost of living.

Why is that? Well since March 2022 inflation has risen 12.7%, but the cost of repaying a mortgage has gone up… 159%. Yikes.

What does that mean is brass tacks? Well in March 2022 the average new home loan in Australia was around $600,000 and the average discounted loan was 3.45%. That means repayments were around $2,678 a month.

Add on 425 basis points in rate rises and you now are paying 7.70% – that’s $4,278 a month – $1,600 more a month (a lazy $19,200 a year).

But in that time house prices have also risen, so people taking out new loans are paying more because now the average home loan is not $600,000 but $666,000.

Also in that time wage have risen around 10.8%. So yeah, not great.

Good afternoon and welcome to this special edition of Australia Institute Live.

Given the whole nation seems to be holding its breath at the moment waiting on the decision of the RBA board (no one more than Jim Chalmers it seems) we thought we would fire up the blog beast to give you instant access to reaction and analysis to help understand just what is happening.

The RBA hasn’t cut rates since November 2020. Back then, it was holding rates because it didn’t want to get to zero, so it was holding a very low rate. Then came the pandemic shutdown and in 2021 former RBA Governor Phil Lowe made his infamous comments that he didn’t expect the bank to increase the cash rate until 2024. Cue the 2022 election campaign and growing inflation around the world and the RBA board made the first of its rapid fire interest rate rises, stopping at 4.35% in November 2023.

As we have seen from the profits of the big banks, that has resulted in quite the wealth transfer. Lowe was replaced with another RBA lifer, Michele Bullock as Governor who, along with the board, has stuck to a fairly conservative approach to interest rates.

But now the conditions are screaming for the bank to do something and fulfill its duty and look after the welfare of the Australian people by stimulating the economy. Inflation is back in the target band of between 2 and 3 %. Headline inflation has been tracking down. Wages are tracking down. Retail spending is down. It’s been pretty clear from late last year that the bank needed to cut rates and stimulate the economy again, but with no January meeting under the new meeting schedule, this meeting has a lot of expectations riding on it.

To not cut in these circumstances would be a massive political move by the bank and cause chaos – not just with people with housing costs who are banking on a tiny bit of relief, but also financial markets who have all built in a rate cut into their own expectations.

We’ll find out at 2.30pm (EDST) for sure, but in the mean time, stick with us as we navigate what this all means.

You’ve got Amy Remeikis with you, with special appearances from chief economist Greg Jericho and others throughout the afternoon.

Ready? I’m re-heating last night’s left overs to help fuel the afternoon.

Let’s get into it.