The evidence suggests Reserve Bank rate cuts don’t hurt confidence

The RBA should ease regardless

In The Conversation, I round-up the US and Australian evidence on the effect of monetary policy on consumer confidence. There is little evidence for a perverse signalling effect from rate cuts on confidence, contrary to the suggestion contained in the November Board minutes.

Today’s RBA Board meeting will be followed by RBA Governor Lowe speaking at the National Press Club Wednesday and appearing before the House Economics Committee Friday. It is hard to think of a better set up to explain a change in monetary policy.

While markets have pared their pricing of a February rate cut, inflation remains below target, the unemployment rate is above its ‘full employment’ rate and the global environment has deteriorated sharply. The risks to further easing are very low compared to the risks of falling further behind the curve.