The RBA's reluctance to lift rates from their 'mildly restrictive' stance in the face of a very high core/headline inflation print in the first quarter of this year, and the RBA's own forecasts for above-target core inflation throughout the remainder of 2011 (and, more damningly, in 2012 and 2013 assuming two further hikes), will inevitably raise questions about its conviction in its projections, its long-term commitment to 'through-the-cycle' price stability of 2.5% pa, its willingness to conduct monetary policy in a genuinely forward-looking, pre-emptive fashion rather than clinging to the need to have historical data justify its decisions, and the influence of the five demonstrably conflicted Board members who represent businesses that are deleteriously affected by restrictive rates and an elevated currency. To my mind's eye, so long as this week's unemployment rate does not rise, the RBA has to go in July. To wait until after the Q2 CPI is released in late July would be to court yet another credibility disaster, which the Bank cannot afford given its patchy inflation-targeting track-record over the last decade-plus. Remember too, in a world of lonely wolves, tis safer to be feared than loved. A central bank's credibility is a preciously fragile thing. In this context, the RBA's corporate Board members could do with a decent dose of monetary policy Viagra. On the outlook for rates, the market economist Adam Carr comments:
"So it looks very much like voodoo and hysteria won out on the day. Now the million dollar question is when? Having kept rates steady this month (at 4.75%) when there was a clear cut case to hike, the natural question is what additional information could they possibly need to see to hike...My initial thoughts are that if they are going to wait till July, then waiting till August is no biggy. They are already behind the curve so it makes little difference..."
