I can't think of many predictions of economists that have actually been right over the last few years. I'm a bit surprised that, after their multiple failures, they're still so keen to put their forecasts out there.\but, economists sometimes surprise us
the government's fiscal management strategy.
RESERVE Bank governor Glenn Stevens delivered some hugely important messages yesterday. Ahead of this morning's inflation figures, on which next week's RBA interest rate decision pivots.
The most immediate message he delivered is that the collective you - Australian households - might just have saved yourself out of a rate rise. Absent some (unlikely) shockingly high inflation number.
Simply and brutally, that the RBA would have to slow the rest of the economy in order to "make way" for the huge investment spending of the resources boom. And it would do so, by raising rates.
They won't be able to hold that line for long, unless that uncertainty in global financial translates into the global economy itself going pear shaped.At today's meeting, the Board considered whether the recent information warranted further policy tightening. On balance, the Board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.
Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past few months. The terms of trade have declined by about 15 per cent since the peak, to a level that is still historically high.
Another cut today of 0.25% to a cash rate of 3%.
Something our political leaders should note,
http://www.rba.gov.au/media-releases/2012/mr-12-36.html
The RBA only has one instrument ie interest rates and the bad news is that in this environment it just isnt an effective tool. Firstly only a modest percentage of households have significant variable mortgages. When rates fall, they dont rush out and spend the savings, they sensibly simply maintain the repayments to pay down quicker and save interest (tax free). Their numbers are probably offset by the retirees who depend on interest income and suffer an effective "drop in pay" and are forced to spend less.
Low interest rates don't seem to have been particularly effective for the US or Japan.
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