RBA is going to ease but moving ahead backwards.

April 3, 2012

RBA and Interest Rates

It is fairly clear that the Australian economy is softening.

It is fairly clear that there is not one but two structural changes occurring in the economy – Mining and Debt reduction or de-leveraging of Households.

It is fairly clear that inflation around the globe and in Australia is moderating.

It is also fairly clear that Monetary Policy, the blunt stick that it is, is being used by the RBA only to tune the economy in aggregate.

Fair enough you might say but today’s Statement that accompanied the Interest rate decision to not to cut rates is once again a very rear vision mirror style of thinking.

Sure the RBA reiterated that in aggregate the economy is going to be close to trend so they aren’t too worried about the economy yet they talk about structural change and the fact that output in the economy has slowed.

I’m not going to get on my high horse or have a rant because the RBA just isn’t listening – they know they need to ease  but like Old Generals they are fighting the last war. Clearly the 5% CPI print in 2008 has scared them badly or why else would they say in the Statement,

At its next meeting, the Board will have the opportunity to reassess the outlook for inflation, taking into account not only data on demand and output but also forthcoming information on prices.

I’m happy to stand corrected but I don’t think I’ve ever seen something so overt from them about the next meeting and the parameters.

And the Wordle cloud bears out my old General analogy – just look at what jumps out at you when you look at the statement like this.

Where is John Monash when you need him.

The RBA is going to cut, they just don’t want to.

Full Statement is here.

Have a great day

Gregory McKenna

www.twitter.com/gregorymckenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If however you do need advice on Investments, Economics, Funding and Liquidity, Interest Rates and Forex and Derivative markets we are happy to help.

Please Email the team at Lighthouse at info@lighthousesecurities.com.au or Greg directly on greg@lighthousesecurities.com.au

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2 Comments on “RBA is going to ease but moving ahead backwards.”

  1. urban daydreams (@ontheturps) Says:

    Unfortunately the RBA is just relying on the cavalry as that is all they have at thie disposal.

    Reply

Trackbacks/Pingbacks

  1. Australian Dollar Outlook – bulls on the run | Lighthouse Securities - April 4, 2012

    […] is the fact they know they are going to ease but are using every trick in the book not too. As I wrote yesterday I’m struck by they way they are operating at present fighting the last war. This won’t […]

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