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Wednesday, September 19, 2012
A slight contradiction in what the RBA is saying?
"The current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth. At this meeting, the Board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate."
Conceptually, this statement does not make sense: one of the RBA's single most important economic variables--its global growth forecast--had apparently fallen. Yet even accounting for this, policy still remained appropriate. This tells us one of two things: either policy was artificially stimulatory prior to the September meeting (eg, the last June cut was a mistake), or the RBA was a bee's dick away from cutting rates last month, but wanted to build the case.
There is no need for the RBA to fine-tune the cash rate on a month-to-month basis when it is receiving a lot of noisy information, and the actual signals are difficult to discern. This represents faux precision in policy-making.