In the run-up to tomorrow’s meeting, several business economists have been touting the possibility the RBA could lift rates by 0.50% tomorrow, though most expect a 0.25% increase which would take the cash rate to 7.25%.

But the real story this week won’t be the rate rise, it’s the way that the RBA is going out of its way to make sure we all get the new anti-inflation, high interest message.

The two Assistant Governors, Dr Malcolm Edey (Economic) and Dr Guy Debelle (Financial Markets) are due to make speeches within 24 hours of the rate decision being announced tomorrow. The RBA never sends its people out into the public arena without some sort of message: it’s a move designed to amplify the main message from the RBA Governor’s statement that will accompany the rate decision.

Perhaps the smarter business economists might get adventurous and ask either man if the RBA has a forecast on the unemployment rate up to June 2010. In the statement of monetary policy the bank released last month, the bank published its estimates for inflation and growth between now and the middle of 2010, but not unemployment, because of its extreme sensitivity.

The bank should do it to help Federal Treasurer Wayne Swan, who is looking more and more like a little lost duck. Take this report of his appearance with Laurie Oakes on the Sunday program yesterday:

Treasurer Wayne Swan has conceded growth might slow in the fight against inflation but rejected suggestions unemployment was certain to rise. “The economy may slow a lot but I have no advice from Treasury that suggests unemployment may increase substantially,” he told the Nine Network.

The RBA could tactfully point out to him that if its anti-inflation approach is to work, unemployment will have to rise.

Treasury will be working on that, as will the Department of Finance, because extra funds will be needed to help those thrown out of work by the RBA’s hardline anti-inflation policy and by spending cuts in the budget.

Whatever the size of the rate rise tomorrow, it will be interesting to see whether the banks try to recover higher funding costs by passing on a larger increase to borrower as the Commonwealth Bank did last month. Some will be tempted. Money market interest rates are now 7.99% for 90 day bank bills and 8.19% for 180 day paper, and the banks will be sorely tempted to try and recoup some of that extra cost.

RBA figures for January show that housing finance continued to run at a 9 year low on an annual growth rate of 11.6%, but business finance jumped to an annual rate of 24.4% in as more and more companies were forced to turn to the banks for money after being shut out of the markets.

Peter Fray

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