RBA – Page 2 – Digital Finance Analytics (DFA) Blog

In The Grips Of A Cash Famine, By Design…

The 14th February is the closing date for submissions to the Treasury relating to the ongoing access to cash in Australia. I made a show on this called “Are We In The Midst Of A Cash Long Con?” and argued there that the Government many well be playing a long con with the community ahead of the upcoming election.

Remember that the Treasury paper setting up the request for submissions says Cash acceptance refers to the practice of businesses accepting cash as a form of payment for goods and services. Cash acceptance levels must remain sufficient to enable consumers, including those unable to use digital payment methods, to participate in the economy. The Albanese government has said it would mandate that businesses must accept cash when selling essential items like groceries and fuel from 2026.

And we have run extra questions through our SME survey which showed that over the past 3 years, the proportion of SME’s prepared to take cash payments has dropped to less than 60%. Despite this more than 75% would welcome a cash mandate, but again only with the caveat that first cash is readily available, and at low or no cost. There was also a higher level of support for cash in Regional and Rural areas compared with the large cities.

But this cash supply issue is complex, as reported by the AFR, and there is a critical upcoming date of July when the temporary arrangements with Armaguard, who moves cash around the country are up for review.

Actually this is one of the most compelling reasons to create a Government Bank, perhaps for full banking via the Australia Post network.

But of course this is beyond the election horizon of May, so Labour can say they are doing things, in response to the public pressure as encapsulated in the Regional Banking Inquiry. Access to physical cash is a human right which needs protecting, but of course the banks hate it. How the life blood of banking cash, became an expensive overhead is the shame here. But the Government con is a big part of the story.

Remember to make your submission by Valentines day.

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Digital Finance Analytics (DFA) Blog

In The Grips Of A Cash Famine, By Design…

00:00 / 00:10:19

RBA Rate Cut Not A Done Deal Yet, But…

The RBA has held the cash rate at a 13-year high for more than a year, awaiting further evidence that inflation is irreversibly back to its 2 per cent to 3 per cent target. Markets since Mr Trump returned to the White House are on a roller-coaster ride as I discussed on my live show on Tuesday. Now Beijing has hit back with tariffs on US goods in a swift response to new American levies on Chinese imports. Earlier, Mr Trump suspended his threat of hefty tariffs on Mexico and Canada for a month. So what will the RBA do?

While one factor in play is Donald Trump’s chaotic trade policies, we also have the “adjusted real inflation rate looking though the Government support for electricity, rents and medicals. Is the inflation really well anchored in the 2-3% band, a signal the RBA is seeking?

The December quarter inflation report did little to counter the RBA’s consistent message demand in the economy is still too high.

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RBA Rate Cut Not A Done Deal Yet, But…

00:00 / 00:06:54

Is The RBA Really All In For A Rate Cut In February?

Many are calling for a RBA cash rate cut in February, but as we look at the overall data indicators, its a line ball call, and stripping away the political pressure and overdone economic commentary, the case is not as strong as you might think. Indeed, the latest RBA Credit Aggregates were pretty strong, and inflation expectations are less well anchored than some seen to believe.

I agree the February meeting is a “live” meeting, but don’t over estimate the probability of a cut.

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Is The RBA Really All In For A Rate Cut In February?

00:00 / 00:09:37

Does The CPI Numberwang Show That Politics Wins?

Australia has been a global outlier in the current easing cycle as most developed world central banks, including the Federal Reserve, have already cut substantially. The Fed is due to announce the outcome of its meeting later today and is expected to stand pat. The RBA, in tackling inflation through 2022-23, opted for a lower peak rate than global counterparts. It worried about the capacity of heavily-geared households to cope with significantly higher mortgage repayments.

But we got a softer-than-expected annual underlying inflation figure of 3.2 per cent for the 3 months to December from the ABS today, and the journos are out in force saying a rate cut from the RBA is February is all but certain now, which of course would be welcomed by households who are mortgaged to the hilt, and music to the ears of politicians ahead of the election. Not so good for savers mind you.

The annual trimmed mean gauge of consumer prices, which shaves off volatile items, rose 3.2% in the three months through December, compared with an expected 3.3% gain and on a quarterly basis, core consumer prices rose 0.5% versus a forecast 0.6%.

Economists at Westpac, Royal Bank of Canada, TD Securities and AMP all brought forward their calls for the first Reserve Bank cut to February. Goldman Sachs which was already predicting February and May rate reductions, now sees an easing in April as well.

But not so fast, because whilst the number landed in a place to make next month’s Reserve Bank of Australia board meeting a cliffhanger, there is still a case to do nothing. And whilst the market has gone all with an 80 to 90 per cent chance of a cut, there is also a reasonable case to hold steady and await more information on the economy. So perhaps it’s more like 50-50.

But given the breadth and depth of government cost of living support, with energy bills credits, rent assistance, 50¢ public transport in Queensland and a revision to a previously mismeasured childcare subsidy even the trimmed mean has been distorted by the huge breadth of government subsidies in the December quarter.

Contrary to common perception, subsidies can affect underlying inflation and could accelerate the RBA cutting interest rates, even if the grounds for doing so may be dubious. Chalmers and Treasury may have outmanoeuvred the RBA. Hence, the lingering doubts about a rate cut relate to whether the RBA board feels confident enough about disinflation based on a sole quarterly number.

So, the key question is, will the politically driven handouts which have been spayed about the place liberally, and sufficient to mask inflation even in the trimmed numbers drive the RBA to cut, in which case politics ahead of the election will have won, at the expense of tax payers, who know the true inflation costs are still way higher than numerwanged. And then of course we have the impact of the lower exchange rate to content with ahead, which could also be inflationary. So a 50 50 call for February, but perhaps politics have won, for now.

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Does The CPI Numberwang Show That Politics Wins?

00:00 / 00:15:19

Does The CPI Numberwang Show That Politics Wins?

So, the key question is, will the politically driven handouts which have been spayed about the place liberally, and sufficient to mask inflation even in the trimmed numbers drive the RBA to cut, in which case politics ahead of the election will have won, at the expense of tax payers, who know the true inflation costs are still way higher than numerwanged. And then of course we have the impact of the lower exchange rate to content with ahead, which could also be inflationary. So a 50-50 call for February, but perhaps politics have won, for now.

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Even Rate Cuts Won’t Help Home Prices…

The debate about when and if the RBA cuts the cash rate continues to run, with many property spruikers claiming people should buy now before the cuts arrive, because home prices will start to run again, when cuts do arrive. Just don’t mention the extreme unaffordability.

Earlier this month, Australia and New Zealand Bank (ANZ) adjusted its cash rate forecast, saying the RBA will likely cut interest rates by 25 basis points (bps) at its February meeting. Its economists believe that there will be two 25-bp cuts in this cycle (in February and August 2025), taking the cash rate to 3.85 per cent.

However, other market analysts are less sure, pointing to the strong labour market, risks from the low exchange rate, and high Government spending and household support putting pressure on underlying inflation. Then we have the potential fallout form the Trump effect.

My own research as I discussed in my Tuesday live show, indeed shows households are under pressure, and I doubt that small rate cuts, if they arrive, will be sufficient to reverse the damage done to households since rates started to lift in a late and half-hearted attempt by the RBA to crush inflation.

Seems to me we are in no-mans land at the moment. Even if rate cuts do come, they will not be sufficient to rekindle price growth in the eastern states. However, in WA, where growth remain buoyant, it might start increasing again. So it will be important to look at local conditions ahead. Check out my January 2025 data which will be out in a couple of weeks.

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Households Could Save A Billion, Or More…

Given the current focus on the rise in the use of cash, it is worth remembering that each year Australian households are collectively charged somewhere between 1 billion dollars and 4 billion dollars in payment surcharges, which is a fee paid by customers, in addition to the price of a good or service, allowing merchants to pass on the cost of the customer’s chosen payment method. These days its mostly debit transactions which might also be triggered by electronic payments from phones and other devices, as well as debit and credit cards.

The RBA accelerated a review into merchant payment costs and surcharging, and has now released the 90 plus submissions received from interested parties and it is clearly creating a storm, with some calling for the banning of said surcharges and others arguing that banning surcharges would result in higher prices to consumers.

When surcharging was introduced 20 years ago, the RBA put Australia out of step with most of the rest of the world, where the practice is illegal. At the time the central bank’s intention was to use them as a price signal to customers that the more expensive payment methods at the time – credit cards – were a burden for the seller. I always believed this is a policy error.

They have been out maneuvered by banks and lately FinTechs who have introduced fixed pricing plans in an attempt to reduce payment fee complexity for business customers. These plans let a merchant pay the same cost irrespective of what card the customer uses. But this has resulted in more surcharging of debit cards, which is the fastest growing segment of the payments market, and which in theory should be the cheapest.

So, some firms are benefiting from the current system, especially larger firms. Second, there is little transparency and as transaction volumes rise, the costs on households rise too. Third, the original assumptions about unbundling and price signaling has proven incorrect, as technology has evolved faster than regulators ability to keep up. To me the benefits of removing surcharging altogether outweigh other options, but of course the question will be, will households at the end of the day, get the benefit. They certainly should, but big business are often in the way…

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Digital Finance Analytics (DFA) Blog

Households Could Save A Billion, Or More…

00:00 / 00:14:48