The Reserve Bank of Australia is worried about (a) exacerbating the property bubble by lowering interest rates any further, and (b) the Aussie dollar being too high. So it seems there’s no room to move – except maybe the RBA selling down the AUD, aided by Joe Hockey’s $8 billion injection? This would help Australian exporters.
Meanwhile, some commentators are astounded at the big four banks’ record profits given such ‘low’ interest rates and the sorry state of business in general. To which I’d pose two just questions:
- Are Australian real interest rates all that low after inflation? Not yet. Inflation’s low because we’re in the deflationary half of a Kondratieff cycle – towards the end stage. When we had 18% interest rates, inflation wasn’t too far behind. I think we make far too much of low nominal interest rates; and these ‘low’ interest rates entrap people into buying grossly overpriced housing at times like these.
- Could it be that banks are making record profits on the back of bubble-inflated residential land prices? I mean, it’s not only via interest that banks make their super-profits. Their greatest rip offs are made from capital repayments.