Stutchbury has a great column in The Oz today that provides a very good synposis of the RBA's thinking:
"THE Reserve Bank is using its interest rate pause to build a more positive rationale for the next restrictive phase of monetary policy.
Glenn Stevens was far from alone in being caught out by the strength of the first China boom as it ran into supply-side bottlenecks. But he was burnt by the bad press reaction to his catch-up interest rate hikes in 2007 and 2008. He wants to manage the process much better this time around.
That's evident from the governor's speech last week, the minutes of the June 1 board meeting and this week's speech by deputy governor Ric Battellino...
Importantly, Australia is not drawing on foreign money because our domestic savings are low. Our 22 per cent of GDP saving rate is well above that of the US and Britain for example.
Instead, our capital inflow is high because domestic investment in new productive capacity is high -- 27 per cent of GDP compared with 21 per cent in Canada, 19 per cent for the US and 17 per cent for Britain. This indicates Australia is using foreign capital productively, Battellino concluded.
Managing an even bigger investment boom will require the policy discipline of higher interest rates. But the central bank's emerging message is that this will be the result of the higher returns for investing in Australia's mining boom, and hence a marker of national prosperity."
