The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, August 20, 2012

RBA intervening against Aussie dollar could cost taxpayers $11.25 billion per annum

A brilliant little post from a senior interest rate strategist:

In Australia’s case, the RBA would be selling AUD with a cost of funds of 25bps below the target overnight cash rate. Assume for the moment that the RBA’s policy rate is steady at 3.5% (a weaker AUD would mean that there is little prospect of further rate cuts), and that the RBA needs to sell about 500bn of AUD to make a meaningful impact.

The RBA is likely to purchase a mix of highly rated foreign Bonds with about a 5yrs maturity — on that portfolio it would be lucky to earn an annual yield of 1% per annum.

If this were the case, the RBA would be paying 3.25% on 500bn (~16.25bn per annum), and earning 1% on the amount (~5bn per annum) – for a total cost of 11.25bn per year.

Who pays this? The Australian Taxpayer — for the RBA’s balance sheet forms a part of the Australian Government’s consolidated accounts.

And that’s not the final cost to the tax-payer — most taxpayers are net importers, and the weaker value of the AUD would lower their real consumption wages