The Aussie is also continuing to get hammered, and is now trading at 96 US cents. The long-term yield curve inversion combined with a falling dollar will provide additional stimulus for the local economy.
The question is this: does cutting rates in December do anything to solve bank funding problems (only guarantees and liquidity facilities will), and will the banks pass on any cut given the turmoil in overseas funding markets?
I personally think a better policy response is to guarantee, one way or another, bank access to funding, and keep rates stable for the time being. The RBA knows that the ultimate Euro response to all of this could be Eurobonds, debt monetisation, and inflation.
After yesterday's remarkable construction-work-done data, which trumped market expectations by an order of magnitude and which will individually add about 1.7 percentage points to Q3 real GDP (not annualised), it's clear the domestic economy is not in the hole that so many pessimists claim. The only rationale for cuts at this stage is the offshore environment.
