Glenn Stevens is unique among central bankers worldwide: he is enjoying the results of both disciplined fiscal policies through the credit boom and prudently measured responses to the bust.
The decision to keep rates flat at 3.25% today represents an acknowledgement that the Australian economy is as strong as it can be given the external factors beyond the government’s control. That is not to say that the situation for the land down under is rosy, but simply that any further rate cuts right now would be superfluous at best (Australian mortgage rates are at historic lows and consumer credit is not frozen like in the US) and at worst could spur inflationary pressure. For now, Stevens has decided to keep his powder dry and wait.
We finally went long the Australian equity market via the etf EWA yesterday, and expect that the relative strength of the economy there, combined with increasing commodity demand from an emerging China, will provide significant upside potential. It is at times of extreme stress such as the one we find ourselves in that the incremental advantage of good leadership is felt in the fullest. Stevens has proven himself to be a solid leader.
Good on Ya’ Mate!