Our best rates commentator, Terry McCrann, published a much more hawkish piece overnight, which moved markets a little. Before yesterday's inflation numbers, McCrann thought there was a 0% possibility--ie, it was an impossibility--that the RBA would hike in May. But as myself, ANZ and ICAP have already noted, all things being equal, the RBA should be hiking in May. It has no reason to delay.
"ONLY the rise and rise in the Aussie dollar and the Reserve Bank's recent softly softly rhetoric has saved you from an official interest rate rise next week.
Absent those factors, the detail in the CPI numbers would have been flashing ``rate rise'' in big red lights. They were seriously concerning in their own right. In broader context, even more so. Especially as the clear surge in inflation pressures came despite the anti-inflationary impact of the strong Aussie.
So be very clear: the rate decision goes ``live'' at the June RBA board meeting. It will be THE issue for discussion at the May meeting next week. This will surface publicly and clearly in RBA governor Glenn Stevens' post-meeting statement.
It would be too much of a shock to spring a rate rise next week after what was said after the last meeting.
The RBA statement then said: ``The board judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook.''
Its minutes said: ``Given the outlook for the economy . . . members considered that this stance remained appropriate.''
Yes, if Stevens and the board decide they don't have the luxury of waiting, even just another month, they would deliver a rate rise next week, without having first modified the rhetoric.
The rise we have already seen in the dollar, plus the further rise likely to come, buys them time. They've also bought themselves time by their courageous pre-emptive rate rises already done.
Once again the RBA is precisely in the best possible place to face the challenges coming at it because it took the tough decisions. And the RBA in the best place means Australia in the best place,.
So they have time not simply to change the rhetoric, and so market expectations, but to further assess what remains a challengingly complicated global and local mix.
We are still not on the threshold of a guaranteed boom - like 2006-07, even if it was to end in a bust - that makes rate rises an absolute certainty, the only questions being how many and how quickly. Stevens and Co have to assume they face broadly a repeat of those upbeat conditions.
But at the same time they must face the continuing possibilities of European debt blowing up, the US slipping back into a double-dip recession and the real horror prospect - China stumbling.
So Stevens has to have his hand firmly on the rate lever, expecting to push it forward, probably sharply - but knowing he might have to suddenly reverse like in 2008."
