RBA lifts rates to 7.25%

Yesterday the Reserve Bank of Australia lifted their official cash rate to 7.25%, only 100 basis points off the New Zealand rate. The accompanying statement is here.

I’m still unsure about how to read these new RBA statements – they are a little less focused than the RBNZ ones, often trying to focus on as many issues as possible.

The bit I look out for is when they say “a significant slowing in demand from its pace of last year is likely to be necessary to reduce inflation over time”. This implies to me that they might lift again soon.

However, they said this in both statements.  The best comparison comes from looking at the last paragraph in both statements:

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RBA lifts rates to 7.0%

The Reserve Bank of Australia lifted its cash rate to 7.0%, on the back of higher than expected inflation outcomes.  In the statement, Governor Stevens stuck firmly to the uncertainty line while admitting that even this lift in rates may not be sufficient to tame inflation.  Continued strength in domestic demand is likely to push them to increase rates again.

For New Zealand this implies a narrowing of the yield gap between Aussie and NZ.  As a result, the relative value of the NZ$ should ease, helping exporters.  A lower cross-rate with Australia then gives the RBNZ one less reason not to increase rates, increase the probability that the Bank will lift rates to 8.5% over the coming months.

Australian cash rate on hold – December 2007

The Reserve Bank of Australia kept their target cash rate on hold yesterday. In a push to increase transparency, they now release a statement with every decisions, which is awesome. Yesterday’s statement was relatively neutral, however as my esteemed colleague CPW says, there is nothing to compare it too so its hard to tell exactly what the statement means. My guess is that the Bank is happy to stay on hold, until the risks associated with subprime worries in the US calm down.

At the same time the September GDP result came out, with a 1.0% seasonally adjusted increase in the September quarter, taking average annual growth to 3.4%. Although 1.0% for a quarter seems high, CPW informed me that this is what the market expected, and furthermore the growth in previous months had been revised down.

RBA lifts rates to 6.75%

It will come as no surprise to anyone that the RBA lifted its cash rate to 6.75%. Glen Stevens statement was relatively hawkish, noting that underlying inflation would likely leave the target band and stating the growth would need to moderate before inflationary pressures would ease.

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Australia leaves rates at 6.5%

The RBA left rates unchanged at 6.5%.  Although economic growth and inflation have been stronger than expected in Australia, global uncertainty would have prevented another increase.

The question now is, will the RBA lift rates again this year?  Ultimately, this will depend the degree of uncertainty surrounding global markets, and the strength of house prices over the next few months.

Does anyone that knows anything about Australia have any opinions on this, and general Australian monetary policy?

Monetary policy: Aussie vs NZ

At least one Australian and one New Zealand commentator feel that the RBNZ is too focused on inflation. They use the example of the RBA, which seems to be controlling inflation without trying to strangle the life out of the economy.

Do people agree with this? Is our Reserve Bank an inflation zealot? Or does our Reserve Bank have a better idea of the long-term costs of inflation, and as a result, is more interested in stamping it out?

I’m not even sure that the situations are comparable, Australia’s growth rates and productivity rates have far outstripped ours, giving their Reserve Bank more leeway to control inflation. After all March non-tradable CPI inflation was only 3.5%pa in Australia, compared to 4.0%pa in New Zealand, indicating a significant difference in domestic price pressure.