RBA, what the …

Ok ok ok, so trimmed mean consumer price inflation is running at 3.2% (ht Institutional Economist), house prices rose by 12% on a year earlier (around 18% annualized), my favourite measure of inflation expectations – the labour cost index – rose by 3.5% on a year earlier.  So given the RBA expects trend real growth (3%), the premium on credit has fallen to about 50bps, and the cash rate is only 3.75% a rate increase is in the bag right!!

No – they left rates unchanged.  The statement seems to indicate that an increase is coming next time, why they didn’t now I have no idea 😛

As far as I can tell this is why:

Concerns regarding some sovereigns have increased

If you are worried about the world RBA just say so, we’re friends and transparency is a great thing in a friendship.

Furthermore, you have an inflation problem.  As a concerned party I would love to intervene on your behalf but I can’t.  You are going to have to get rates up and get this inflation down.

In New Zealand inflation is contained and the Bank does have some time to think.  In Australia they need to keep moving.

Update:  My impression is that a decline in the money stock could also engender caution – broad money declined by 0.8% (sa) in the December quarter, the fastest rate of decline since July 2002.  They may feel that this is an indicator of weakness in Dec quarterly activity rather than a run down in reserves on the back of rising interest rates.

6 replies
  1. Kimble
    Kimble says:

    Scuttlebutt is that the RBA is concerned about the popping the Australian property bubble. House prices in the major centres, especially Sydney, have barely been affected by world events, and they were overpriced to begin with.

  2. Matt Nolan
    Matt Nolan says:


    Random, they should really look past a relative price movement like that – and even if they didn’t it should be convincing them rates need to be higher not lower.

    Unless they think that it is caused by fundamentals, such as a low build rate, and as a result they are worried about hammering some parts of the business sector. Generally banks have shown themselves more willing to loan to households than businesses recently – interesting.

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