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It’s absurd to suggest that rate cuts are good news for the government

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22.05.2019

On Tuesday Philip Lowe, the governor of the Reserve Bank, made it as clear as a central banker can get that interest rate cuts are coming. He also was as clear as he could be that the economy needs a lot of help.

Don’t you just hate how reality comes along to rain on your parade? All that talk of a strong economy and glorious budget surplus – a surplus so sure to occur that we can talk in the past tense about how it has already happened a year from now! It all seemed so good.

But alas it was all bulldust.

The economy is not strong, and on Tuesday Lowe made that plain in a speech to the Economic Society of Australia. And he made it so plain that there is now around a 93% chance of a rate cut in two week’s time, and the market has fully priced in a further cut to 1.0% by November.

And just in case you think that is not dramatic enough – the market is also saying it is pretty much a 50:50 bet on whether by the end of next year the cash rate will be 1% or 0.75%:

Lowe was abundantly clear that the issue was households and their lack of income growth. This is something I (and others) have been banging on about for a long time, but it was nice to hear the governor note that “the main reason for the shift in momentum in the Australian economy is a slowdown in household consumption growth”.

And the reason for that slowdown was “the long........

© The Guardian