RBA Tries Not to Be The Bad Guy

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Just in case you are wondering why we are still speculating on the Reserve Bank of Australia’s interest rate decision it is because we are penning these notes while waiting at Sydney Airport yesterday evening.  (Mental note: remember not to arrive at the airport two hours before departure – there are much better ways to spend an evening).

Aside from sitting here and resisting the temptation to buy Sydney souvenir giftware, we are also wondering whether the RBA really did have the guts to raise rates this morning (or as the finance media prefers to term it, ‘hike.’  We don’t think we’ve ever seen the word used unless it is in connection with interest rates.  In fact, we fear that we have probably used it ourselves).

Anyway, back to the point.  The RBA is just as concerned as anyone to ensure that it is not seen as the bad guy.  So far it is working like a dream.  Whoever does the PR for the RBA should be given a medal.

Regardless of the probability that they have sat on their hands for too long, doing nothing, they are always cast as the untouchable wise-ones.

The reality is that the hard decisions on interest rates should and could have been taken months ago.  Instead the RBA bottled it.

Granted (and thankfully) the RBA can’t control everything.  It can’t control the high commodity prices, which have had such an impact on global prices, including in Australia.

And by increasing interest rates it can’t stop the Aussie dollar from rising, which encourages people to spend more on imports, which in turn can push up inflation.

That being said, however, most working age Australians have a mortgage of one type or another, whether it is on their home or on an investment property.

If the RBA had increased rates further last year, they may very well have had some impact on the retail sales numbers that were released this week as it would have drawn more money away from spending towards debt repayments.

It may also have made businesses hold back on additional spending and expansion; after all, with unemployment around 5% we are as near to full employment as we ever will be.

Are businesses expanding and spending on growth due to demand or is it expansion based on a belief of future growth?  Is there really a skills shortage or is it just that a whole bunch of jobs are being advertised for some future as yet unrealised growth?

We only mention it.  We don’t know the answer.  But it has ‘Bust’ written all over it, and the RBA can put their hand up to accept some of the blame.

Kris Sayce
The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

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Comments

  1. hi there,

    well, if we look at the board composition of the RBA it may be too big an ask for “hard decisions”

    whilst these are respected and admired people, these are the same people who’s livelihood depends a great deal on consumer spending.

    do we really expect food, energy, media,building materials, bio tech software, etc.. to make “hard decisions” and take away the punchbowl???

    at the same time of course IF a 0.25% shift in rates really has the dramatic impact the politicians and media cranks want us to believe, we truly are not in control of our own destination, and maybe we should review our individual circumstances rather than the monthly cash rate.

    all the best herbert

    Reply
  2. It really is interesting that the Anglophone countries as a group show such a high marginal propensity to consume. The US, UK, Canada, Australia and NZ all share a consumer culture that seems almost eager to take on more debt. The glaring difference is that the UK and NZ has already raised rates and RBA looks almost certain to follow. Yet here in the US, we have the Fed giving itself the option of cutting rates, while the Bank of Canada quit raising their repo rate even before the Fed.

    While we share a similar culture, it looks as if our overseas friends are more in line with central banks around the world than with the Fed. That is probably good for you and bad for us (or should I say US).

    Deron Kawamoto
    April 4, 2007
    Reply

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