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James Morley, Mark Thirlwell, Warwick McKibbin, Mark Crosby, Saul Eslake...more, Paul Bloxham, Bob Gregory, Jeffrey Sheen, Shaun Vahey
Keep cash rate on hold on Melbourne Cup Day but easing bias remains: shadow RBA board
The Reserve Bank should leave the cash rate on hold at 3.25% today, says the self-anointed "shadow RBA board", though the decision was far from unanimous, with a rate hold getting a 60% weighting from members.
The board comprises a panel of noted academics and economists and gives its views on the monthly cash rate decision as part of a widely reported exercise by the Australian National University’s Centre for Applied Macroeconomic Analysis.
Among those leaning towards a cash rate cut today is HSBC Australia chief economist Paul Bloxham, who says that while the RBA board could wait for further evidence about the extent to which the current below neutral interest rates are supporting demand in the economy, there is little risk of high inflation, meaning it “may be prudent to cut rates a bit further this month”.
Shadow board member James Morley, professor at the University of New South Wales, disagrees, saying recent cuts in the policy rate mean “monetary policy is loose, with the implicit real interest rate well below its neutral level”.
"Thus, with low inflation and an uptick in the unemployment rate, the current stance is appropriate for the short term, with a slight easing bias in case the employment situation deteriorates further," Morley says.
Also in favour of a rate hold today is Warwick McKibbin, professor of economics at ANU and a former RBA board member under John Howard. He says “no change in interest rates domestically would be prudent especially given ambiguous signals from various government ministers that the fiscal surplus may not be realised this financial year”.
Looking beyond November, the shadow board says the most preferred setting for the cash rate is 25 basis points down to 3% within six months, with only a 30% risk that rates should have to fall lower than that.
However, two shadow board members, ANU professor Bob Gregory and Bank of America chief economist Saul Eslake (formerly chief economist at ANZ), believe rates could be even lower in 12 months, backing a range of 2.5% to 2.75%
The full shadow board is:
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