The RBA increased interest rates again. HERE is Peter Martin's take on it.
The first thing to say is the RBA is in a difficult position because it was so slow to get back to interest rates at the neutral level even though they knew about it very well. Mind you ALL central banks failed on this regard.
They were also not helped by the previous government not undertaking any budget repair on the structural side indeed the tax cuts make the situation worse. If no structural improvement has not been undertaken and given how potent fiscal policy is and the RBA tightening so quickly then any large and sudden fiscal tightening could guarantee a recession.
The RBA is not helped that monetary policy is not exactly science. It is guesswork when to stop raising rates. Monetary policy works with a substantial lag so it is not inconceivable they might have raised rates too far or too little.
Even though inflation is a supply shock the only thing the RBA can do is to slow the economy. At least we now have people bowing to reality in realising the is no wages break out nor a potential one. This usually means inflation will take longer to fall to the 2-3% range on an underlying basis.
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