As expected the RBA held the cash rate at 6% this morning. The decision was widely predicted, and will enable Glenn Stevens and Co. to assess the economy further when it has a wider array of data come November. A potential trigger will be the third quarter Consumer Price Index to be released on 25 October.

However, as Henry wrote yesterday in his monthly advice for the RBA board, there is still need for further monetary policy tightening:

“The global situation is such that further monetary policy tightening will almost certainly be needed. Australia’s particular circumstances are likely to include a strong recovery of consumer spending on top of strong investment spending by business. Wages growth has been creeping up and the tensions here are likely to rise despite the restraining influence of the new industrial relations framework.
“Goods and services inflation is too high for comfort. This is the single economic statistic the Reserve will worry most about. This is why Henry believes at least two further rate hikes will be needed, although recent global developments may provide some breathing space”.

Readers should be carefully monitoring the global geopolitical situation, as its impact on inflation, for example through commodity prices, is well documented. Readers can stay up to date with the important economic statistics, with regular comment, through Economic News — Henry’s Views.

More reading at Henry Thornton (link will be up asap).

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Peter Fray
Peter Fray
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