Rates about right

30 March 2014

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Crawford School of Public Policy’s Centre for Applied Macroeconomic Analysis (CAMA) aims to bring together economists working on macroeconomic and financial issues throughout Australia and across the Asia Pacific region.

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The outlook for the global economy may be shrouded in uncertainty, but Australian monetary policy settings are just about right according to the RBA Shadow Board.

The RBA Shadow Board – a project based at Crawford School’s Centre for Applied Macroeconomic Analysis (CAMA) – brings together nine of the country’s leading experts to look at the economy and make a probabilistic call on which way the central bank should jump ahead of Tuesday’s RBA meeting.

Shadow Board Chair Dr Timo Henckel said the six members who voted in this round thought the current economic settings for the country were correct and didn’t need changing.

“The Shadow Board is 71 per cent confident that the cash rate should remain steady at 2.5 per cent. The probability attached to a required rate cut equals 4 per cent, while the probability of a required rate hike has increased to 25 per cent.

“The decision reflects that the Australian labour market is showing promising signs, with a surprisingly robust increase in employment in February 2014, a rebound in the participation rate from 64.49 per cent to 64.85 per cent, and the unemployment rate remaining unchanged at 6 per cent.

“At the moment, the greatest threat to the Australian economy comes from the international economy. Of considerable concern is the fallout from a possible political crisis engulfing Ukraine and Russia. This might include trade and investment sanctions, higher energy prices and volatile capital flows,” he said.

The CAMA RBA Shadow Board includes Paul Bloxham of HSBC; Dr Mark Crosby and Saul Eslake of Bank of America Merrill Lynch; Adjunct Professor Guay Lim of the University of Melbourne; James Morley of University of New South Wales; Jeffrey Sheen of Macquarie University; and Mardi Dungey of University of Tasmania.

The two ANU professors on the shadow board, Bob Gregory and Warwick McKibbin, have both served on the RBA Board.

This month’s RBA Shadow Board consensus of 71 per cent to keep the cash rate at its current level has decreased slightly from 73 per cent last month.

The probability of a rate change six months out is unchanged at 39 per cent, while the board members’ confidence in a required cash rate increase a year out has risen to 67 per cent from 54 per cent in March.

Full results from the Shadow Board’s voting are available at

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