Rates are right, but could go lower

The consensus view of the panel of expert economists, who make up the Shadow Reserve Bank of Australia (RBA) Board, indicates stronger evidence for a rate cut at tomorrow’s RBA meeting than last month.

The Shadow RBA Board assessed the probability that rates should be lowered at around 23 percent, but the most preferred outcome is to hold the interest rate at the current level.

Now in its second month, the Shadow RBA Board provides its verdict on the Thursday before the RBA Board’s decision on whether to lift, drop or stabilise interest rates. It was established as a research project by The Australian National University to look at interest rate setting by monetary policymakers in August.

The outcomes from the second round are available at http://cama.anu.edu.au/ShadowRBAboard.asp. Votes are submitted electronically.

As part of the pilot project, which runs until October, shadow board members were asked to rank their preferred target interest rate, and to give the probability that each interest rate was appropriate.

‘Each economist gave a percentage value for how much they preferred each interest rate using an electronic voting system,’ Director of the Centre for Applied Macroeconomic Analysis at ANU, Professor Shaun Vahey said.

‘This group has been set up for a panel of experts to consider what they think the RBA should do. Unlike the RBA Board, the Shadow Board is comprised entirely of expert economists.”