Macquarie Bank's take on the RBA's seemingly dovish statements yesterday, which conflict with the messages communicated in the SMP:
"Will the real RBA please stand up? The flow of recent RBA commentary has been perplexing. For example, after the February Board meeting, the RBA simply noted that the floods would provide a “temporary adverse” impact on the economy, which seemed to imply that it was inconsequential. But in parliamentary testimony, the RBA Governor suggested that the impact of the floods “would be quite substantial” which has a decidedly different tone.
At the same time, while the RBA expects underlying inflation to rise towards the top of its 2-3% inflation target by the end of 2011, the Governor noted that markets don't have a rate hike factored in until the end of the year and said that he was “comfortable” with their current position.
There are several potential explanations for the mixed messages emerging from the RBA. It could reflect genuine uncertainty – and competing views – within the RBA itself. Or it could indicate that while the RBA wants to leave the fear of a potential rate hike in the minds of homeowners, they really don't think any further tightening is required.
But whatever the explanation, this situation is ripe for volatile markets in 2011."
