Another solid effort from Tezza, who seems to be hitting his straps of late:
Into this flux the speech from the Reserve Bank's deputy governor Philip Lowe could not have been more timely.
It was not directly on the fear and loathing. But to explain the dynamics of our two-speed economy and the RBA's analysis of it and its response with interest rates.
There are two critical elements - abstracting from a total meltdown in which 'all bets would be off.'
One is the dollar. The RBA would be comfortable with a somewhat weaker dollar. Indeed it would probably welcome it, as providing some rebalance in the two speeds - and we could still have a rate cut or cuts. But any serious plunge would start to cause real problems. As a strong dollar has been crucial to offsetting high domestic inflation, enabling the rate cuts we've had so far. The second element is missing productivity. That's the 'critical' in the growth and jobs dynamic, even though productivity eats jobs initially. There are some delicate balancing acts. Between the dollar and inflation. Between productivity and jobs growth. What was really important about Lowe's speech was the way it showed the RBA's ability to be very flexible; to change its collective mind as the facts changed. But crucially, to build policy to maximise growth - and so, sustainable jobs - on the foundation of low and relatively stable inflation. Given the mess in Canberra - and it's not just the politicians, but sadly also a totally debased Treasury - this is important beyond your understanding.
