A note on the Reserve Bank of Australia and the cash rate from Deutsche Bank's chief economist Adam Boyton
In brief:
- Hiking to 3.5% would send household consumption much lower, to recession levels
- Neutral is closer to 1.75%
- DB citing soft consumer sector
"We estimate 100 basis points of rate hikes over 2018 and 2019 would sink household consumption growth to levels part-way between a mid-cycle slowdown and a genuine recession"
DB says RBA has got it wrong, citing:
- High household debt
- Low wage growth
"If we consider the concept of a neutral cash rate from the current perspective of the household sector - namely, what cash rate takes our measure of household financial obligations to its long-run average - then the answer is currently around 1.75 per cent"
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ps. In the headline, I reckon DB did LOL at the 3.5% comment!
