Academics vs Practitioners: diversity of opinions within the Shadow Board
Many economists think the RBA Board will cut the cash rate this month.
With commodity prices projected to be weakening, financial markets suggest
a rate cut is likely. Mind you, many practitioners suggested a cut was coming
last month too, and it didn't materialise.
The nine experts on the Shadow Board, a mix of practitioners and academics,
give their views on what the interest rate should be, rather than predicting
actual RBA Board behaviour. The novel construction of the Shadow Board
permits analysis of the individual opinions both across a range of
interest rate settings and through time.
Overall, the Shadow Board strongly supports leaving rates unchanged in
December at 3.25 percent, with around 55 percent weight. A decrease to 3.00
percent receives approximately 30 percent weight.
Closer examination reveals a split in views between academics
and practitioners. Two practitioners, Paul Bloxham and Saul Eslake, prefer
a rate cut to 3.00 percent over leaving rates unchanged this month. Although
many of the academics see weakening inflationary pressures over the next
six months, most prefer a slower path of adjustment for interest rates. Longer
term, several experts anticipate that rates will have to rise.