The Reserve Bank has done two things with its “no rate hike” decision. The first is to increase uncertainty – as The Australian‘s editorial says, it’s “unclear where RBA’s going on interest rates” and as the AFR says, the RBA has left us “in the dark.”

The second innovation was that Reserve Bank board members briefed the press afterwards. Excuse me – selective briefings to whoever managed to find said board members in Martin Place, or wherever. We are all for the Reserve Bank briefing Australians after its meetings of the board, but this should be done at a formal press event backed up by a statement posted on the bank’s website for those of us who do not hang around Martin Place waiting for stray gobbets of opinion.

On the more important issue of the future of interest rates and the economy, the balance of sensible opinion seems to be that necessary rate increases have merely been postponed, although some commentators have said this means the tightening phase is over.

With the current account deficit at 7% of GDP and inflation headed for 4% or 5%, rate rises will be necessary unless the economy collapses under the weight of household and international debt. The chances of this are now above 50%.

More here.

Peter Fray

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