Age article - RBA 'upbeat'

JulieW · Feb 4, 2011

Upbeat, but RBA looking to hike
February 4, 2011 - 12:54PM

The Reserve Bank of Australia is maintaining its optimistic view of the nation's economy in its quarterly economic statement, despite recent floods.

But economists say the central bank has also maintained a tightening bias that will see the cash rate hit 5.5 per cent by the end of the calendar year.

"While the floods in eastern Australia are expected to have a material effect on the near-term quarterly profile of economic activity, the medium-term outlook for the economy is broadly unchanged," the RBA said in its quarterly Statement on Monetary Policy, published today.

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"Growth in the June quarter is forecast to be boosted as coal production recovers and as households and firms in flood-affected areas begin to replace damaged household items and machinery and equipment."

The RBA left its growth and inflation forecasts broadly unchanged in the February statement.

It sees the economy growing at an above average pace of around 3.75 to 4 per cent over the forecast period to June 2013.

"All up, it is a reasonably positive statement. It is consistent with it's tightening bias," RBC Capital Markets economist Su-Lin Ong said.

"It's a reminder to the market that it is more likely than not we'll get some interest rate hikes later on this year."

The bottom line from the statement is that interest rates won't be going up in a hurry, CommSec chief economist Craig James said in a research note.

"The pattern of growth will change in response to the floods, but there is no change to inflation in the medium term," he said.

"In fact, near-term inflation is lower than the Reserve Bank had initially expected. Interest rates look to be on hold for the next two months.

"The March quarter inflation data to be released in late April is the next signpost to watch."

Mr James said he expected the cash rate to be increased from its current 4.75 per cent to 5.5 per cent by the end of calendar 2011.

The RBA on Tuesday opted to leave the cash rate on hold at its current level following the board's first meeting of 2011.

There were few expectations the bank would raise the rate following flooding along the nation's east coast in late December and January.

In a statement accompanying that decision, RBA governor Glenn Stevens said the bank would look through the short term shock of the natural disaster and concentrate on the medium term outlook.

JP Morgan economist Helen Kevans said the statement continued the RBA's "common theme" that international, as well as domestic, growth was set to continue.

She also said the statement fulfilled the RBA's promise, made on Tuesday, that it would look through the short term effects of the flooding disaster along the nation's east coast.

"They reiterated that any impact of the floods will be looked through, will be temporary," she said.

However, the RBA statement preceded Cyclone Yasi.

"I don't think we will see too many changes to the growth forecasts over the cyclone, but there might be changes to their inflation forecasts if (food prices increase)," she said.
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I think that this points to a wage spiral inflationary environment with the inevitable whirring up to a crash as it spins out of control. This is also a strong indicator to me of just how little the RBA and commentators consider a US dollar crash as a likelihood. Mind you this was before Egypt started lining up the ducks.

Thoughts?

Peter · Feb 4, 2011

If the RBA and commentators thought a Us dollars crash was a likelihood would they say so?
They all talk everything up,thats what they are there for.
What would be the consequences for themselves personally if they didn't.

Stedlar · Feb 4, 2011

mmmmm.... As if they would be down beat. They are there to pump, not dump. Not yet anyway.

Stedlar · Feb 4, 2011

Peter said:

If the RBA and commentators thought a Us dollars crash was a likelihood would they say so?
They all talk everything up,thats what they are there for.
What would be the consequences for themselves personally if they didn't.

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Remember when Barnaby suggested that Aus should take steps just in case the US defaulted.

He was howled down.

hawkeye · Feb 4, 2011

Stedlar said:

Peter said:

If the RBA and commentators thought a Us dollars crash was a likelihood would they say so?
They all talk everything up,thats what they are there for.
What would be the consequences for themselves personally if they didn't.

Click to expand...

Remember when Barnaby suggested that Aus should take steps just in case the US defaulted.

He was howled down.
Click to expand...

he also talked about a govt bank so that money could be lent at lower IR's too iirc.

I never got the impression he really knew what he was talking about, just probably read a few of the same websites that we do.

JulieW · Feb 4, 2011

p.s.
http://online.wsj.com/article/SB10001424052748704775604576119960455333704.html

The net notional amount of derivatives used to hedge or speculate against a default on U.S. government debt rose 12% in late January, according to Depository Trust & Clearing Corp. figures.

The increase suggests investors are becoming more nervous about the quality of U.S. debt. It also threatens to cast a pall over the notion that Treasurys are risk-free assets investors should run to for haven from other instruments.
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Guest · Feb 4, 2011

The last 40 years has seen rates over 10% 3 times.

We're due.

systematic · Feb 4, 2011

Peter said:

If the RBA and commentators thought a Us dollars crash was a likelihood would they say so?
They all talk everything up,thats what they are there for.
What would be the consequences for themselves personally if they didn't.

Click to expand...

It wouldnt surprise me if the members have everything they own wrapped up in trusts and fancy paper trails so even if they were sued they technically have nothing and are indemnified from poor decisions. After all .... its nothing personal ..... its just business.....

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Age article - RBA 'upbeat'

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