Monday, November 1, 2010

Rates surprise

The RBA Board decided to raise official interest rates by 25 basis points today against my, and many other economists, expectations. One wonders if they take pleasure in proving forecasts wrong, or whether they are simply following the cardinal rule of monetary policy - defy expectations.

Unfortunately I think it is the destabilising thing to do, and maintain that we may see this decision reversed in the future.  With a housing market waiting to crumble, tourism and education exports fading, commodity prices peaking and inflation already moderating,  expect some sullen economic data this festive season.


  1. ==========
    Statement by Glenn Stevens: "The global economy grew faster than trend over the year to mid 2010. Global growth will probably ease back to about trend pace over the coming year as strong recoveries in the emerging world give way to a more sustainable pace of expansion and growth remains subdued in the United States and Europe."

    "Chart following" is rightly denigrated concerning stock prices. Past price changes on average are not related to future changes, either up or down. But, it seems that chart following is a good basis for setting central bank rates.

  2. I like others will be following the other banks moves on their rate settings.

    If they leave the CBA high and dry above the market, and they are already above most lenders, then Ralph will see his loan book attacked by the non banks. We may see as much a 0.5% difference, and for anyone owing $400,000 or more that makes the hassle of refinancing very worthwhile.

  3. The RBA will most likely continue to lift interest rates into 2011 as this resources boom fires up parts of the economy and creates a dangerous two speed environment. High inflation is some parts, deflation in others. This is a difficult balancing act for the RBA, and probably the first real test of their mettle. If Australia’s economy does expand by over 3% this year, and next year as predicted, we will see Australian employers adding jobs at breakneck pace, and the RBA lifting rates at an equally high pace!

    Alex Barton
    Australian Property Forum