Wednesday, 26 August 2015

Just in time delivery

Blog Post 9 | 5th May 2015

Just in time delivery

The decision by the RBA to cut the cash rate by 25 basis points in May has proven quiet effective in stabilising money markets since early May. 3 year CGS yields have normalised to above 2 year CGS yields, though this spread is again narrowing. 

Meanwhile the RBA is in between a rock and a hard place; a tiring economy that yearns for liquidity to improve the balance sheets of banks facilitating improvements to borrowing throughout the economy (enabled via reducing the Cash Rate) and a hungry housing market that is gobbling up cheap money, making housing less affordable and generating a potential asset bubble. 

For now, the stabilisation of money markets suggests that May rate cut decision was timely. The economic picture could have been quiet different now and into the future had they continued to hold off on cutting the cash rate.