The RBA very sensibly chose not to lower the cash rate
at their meeting on 7 May 2019.
Of course it remains to be seen whether they
will be conned into making a cut later this year by those who believe they can
micro-manage the economy to an absolutely ridiculous degree.
I have been arguing for some time that another rate cut
is not required and I won’t repeat those arguments again here, but I thought it
would be interesting to take a close look at which economists (at major
financial institutions) got the rate call correct and who got it wrong.
The following information (sourced from Bloomberg)
shows who passed and who failed:
| Economist | Firm | Estimate | Pass or Fail? |
| Shane Oliver | AMP Capital | 1.25 | Fail |
| David Plank | ANZ | 1.25 | Fail |
| Tony Morriss | BAML | 1.5 | Pass |
| Rahul Bajoria | Barclays Bank | 1.5 | Pass |
| Marcel Thieliant | Capital Economics | 1.25 | Fail |
| Joshua Williamson | Citigroup | 1.25 | Fail |
| Michael Blythe | Commonwealth Bank | 1.5 | Pass |
| Philip Odonaghoe | Deutsche Bank | 1.5 | Pass |
| Paul Bloxham | HSBC Bank Australia | 1.5 | Pass |
| Rob Carnell | ING Bank | 1.25 | Fail |
| Sally M Auld | JP Morgan | 1.25 | Fail |
| Stephen Roberts | Laminar Capital | 1.5 | Pass |
| Justin Fabo | Macquarie Group | 1.25 | Fail |
| Stephen Koukoulas | Market Economics | 1.25 | Fail |
| Chris Read | Morgan Stanley Australia | 1.5 | Pass |
| Michael Knox | Morgans | 1.25 | Fail |
| Kaixin Owyong | NAB | 1.5 | Pass |
| Andrew Ticehurst | Nomura | 1.25 | Fail |
| Matthew Peter | QIC | 1.25 | Fail |
| Su-Lin Ong | Royal Bank of Canada | 1.25 | Fail |
| Klaus Baader | Societe Generale | 1.5 | Pass |
| Besa Deda | St George Bank | 1.5 | Pass |
| Chidu Narayanan | Standard Chartered Bank | 1.5 | Pass |
| Annette Beacher | Toronto Dominion Bank | 1.25 | Fail |
| Bill Evans | Westpac | 1.5 | Pass |
As you can see, when the decision that the RBA has to
make becomes difficult, the economists’ predictions become sheer pot luck. Of
the 25 economists listed above, 13, or just over half, got the call wrong. You
could have flipped a coin and obtained a similar outcome.
As Pepperstone’s head of research, Chris Weston stated
in an AFR article on 8 May 2019:
As it turned out,
the central bank not only held rates steady, but those who had been betting on
a rate cut were not even supplied with more tangible evidence the RBA was considering an
imminent move. As a result, traders positioned for a cut would have
been "absolutely destroyed".
Any
of the institutions shown above that actually traded on the advice of the
economists (who were wrong) would certainly have lost money.
A
special mention to Shane Oliver at AMP, Sally Auld at JP Morgan and Su-Lin Ong
at RBC – you were all completely wrong but were all over the media talking your
own book. Well, hopefully it’s a case of “once bitten, twice shy”.
David
Plank at ANZ must also be feeling like a real loser - his counterparts at the other
three big banks got the call correct.
As
the very astute Christopher Joye of Coolabah Capital stated in the AFR of 3 May
2019:
Earlier in the week
I revealed that APRA and the RBA were sensibly considering cutting the minimum
interest rate banks apply when working out how much they will lend
to a borrower from 7.25 per cent currently to 6.25 per cent, which would
instantly increase borrowing capacity and purchasing power by about 5 per cent.
This
is actually a vastly better solution than lowering the cash rate further. The
RBA should also revise down its antiquated inflation targets and hold fire for
real emergencies, like a recession. It also needs to completely ignore the
opinions of celebrity economists, and at least this time, it has.
