While rejecting the case for two rate cuts, I wrote on the 21st of October:
"Another wrinkle layered on top of all this is, I suspect, that the RBA would not be opposed to "normalising" the level of interest rates in view of its new information. If the third-quarter inflation numbers print on the very low side, they will hammer the final nail in the coffin of the current inflation debate. There will be no evidence that price pressures are accelerating. With a still high currency, this will then denude the rationale for holding the cost of money at the RBA's "mildly restrictive" level (assuming that the RBA is able to revise down all of its currently-elevated inflation forecasts out to 2013).
By bringing the price of money back to what the RBA considers to be a "neutral" level, it can signal to the community that it is not going to unnecessarily punish it on the basis of a misguided pursuit of inflation-fighting zealotry. In doing so, it builds up more goodwill with the public that can be expended when the RBA has a real inflation battle to fight.
A genuinely low core inflation print next Wednesday of equal to or less than 0.6% might give the RBA sufficient ammunition to justify a pleasant Melbourne Cup Day present."
