The Reserve Bank almost certainly got it wrong at its board meeting on Tuesday.

Tim Colebatch takes up Henry’s doves and hawks theme, curiously without attribution. “The doves took their cue from low inflation in the December quarter, and the tranquil tone of the Reserve’s last quarterly statement on the economy, which implied that rates would stay on hold…The hawks took their cue from a spectacular run of strong economic figures, and a spear-rattling speech last month by assistant governor Malcolm Edey, which warned that inflation was too high, at risk of going higher, and a rate rise was a month-by-month proposition”.

Financial market participants are reportedly angry that the Reserve sent mixed messages. Is this a new boy stuffing up, or an honest bloke allowing the great unwashed a glimpse of the Reserve’s internal debate? Henry chooses to believe the second interpretation. However, the “total silence” when yesterday’s “No rate change” decision was announced is unacceptable, and we urge Governor Glenn Stevens to fix this problem.

Reportedly, it was the weakness of the US housing numbers that caused the Reserve to stay its hand. There is also a clever theory circulating to the effect that by saying “not yet” the Reserve has effectively tightened monetary policy –in view of the thundering silence about the decision, “anti-jawboning” would seem the best description.

The other Henry, Dr Ken, of Treasury, has seen his internal speech to his troops leaked. This is of interest because he voiced some concerns about episodes when Treasury is not listened to by the pollies, specifically on the tricky question of water. “Dr Henry does not have to get elected” is the best comment on this debate, heard on ABC radio.

Of course, we’d all be better off if Treasury’s advice was routinely available to inform the policy debate. This is the direction in which life is going, but for the present we shall have to continue to rely on leaks, innuendo and clever theorising by the commentariat — this is the approach used today by journos theorising about the RBA’s thinking, incidentally.

In economic data news, the Roy Morgan Unemployment Estimate, released today, found that unemployment ran at 7.2% in the March Quarter — substantially higher (and more realistic) than the ABS unemployment rate of 4.6%. However, our graph shows that the Roy Morgan Unemployment Estimate has been trending lower over the past few years, signalling that the labour market is at its tightest in some time.

Time will tell us whether the tight labour market will eventually result in wage-push inflation. Although the Government’s WorkChoices legislation certainly adds downward pressure, the official wage price index grew by 4% in the year to December, and it was artificially depressed by the delayed Fair Pay Commission award — this is too high for comfort.

Read more at Henry Thornton.