Tuesday, 6 June 2023

The RBA has gone too far

 The RBA lifted official interest rates again by 25 basis points.

This decision makes no sense.

  • The economy is clearly slowing and wil slow further.
  • The budget is slightly contractionary. Even those who claim it isn't have not been able to show the structural deficit INCREASED.
  • The monthly CPI did show inflation continuing to fall. ( My thanks to Stephen Kirchner to pointing out the budget gave the ABS more money so the  monthly CPI will be the exact copy of ther quarterly CPI. It is at present different))
  • The RBA were clearly not concerned by the Fair work commision decision.
So why did they act. My old mate ( both literally and metaphorically)  Peter Martin says in essence they want to ensure the economy slows enough to reduce inflation.
My guess , and it is only a guess, is this is correct together with showing employers if they agree to wages being too high then they will wear it.

My criticism here is there is no data to confirm this thinking. We still have to feel the total effect of the original decision to raise rates.
I am afraid Lowe has been a dud appointment. He looked great on paper but on the job he has been a major disappointment.

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