A tweet from Warwick McKibbin, who was a member of the Reserve Bank of Australia policy board for a decade and is now a Professor of Economics at the Australian National University, is gaining attention here in Oz this morning:
Breaking down that tweet shows why the RBA will hike rates today:
Inflation in Australia is due to demand>supply. To cut inflation:
- raise supply (through productivity) … the RBA can’t do anything about this
- cut demand through less government spending … the RBA can’t do anything about this
- or higher taxes … the RBA can’t do anything about this
- or raise interest rates … and, here is the one thing the RBA can do.
So far policy has been to subsidise demand and leaving it again to the RBA as the last resort.
—-
The RBA statement is due at 2.30pm Sydney time, which is 2230 US Eastern time and 0330 GMT.
Earlier previews:
- Failure to act on high CPI threatens to damage the Reserve Bank of Australia’s credibility
- Reuters Poll: RBA to high cash rate to 4.35% on November 7
- IMF tells the RBA to hike interest rates higher, and hold ’em high for longer
- Westpac forecasting a November Reserve Bank of Australia rate hike
- UBS forecasts a November RBA interest rate hike, and likely more to come after that
- RBA rate hike incoming on November 7 – will they hike again in December?
- Commonwealth Bank of Australia forecast a 25bp RBA rate hike on November 7
- Australia – Demand for luxury supercars “through the roof”
- Australian Treasurer Chalmers says inflation is moderating but persistent
- ANZ forecasts a 25bp RBA interest rate hike on November 7 (previous forecast was December)
- Australia – market is rapidly pricing in a November rate hike after surging inflation data
- AUD/USD jumped higher on Australian inflation data, November 7 rate hike is likely now.
Analyst expectations are (nearly) unanimous that the Bank will hike its cash rate by 25bp but market pricing is not nearly so certain.
This article was written by Eamonn Sheridan at www.forexlive.com. Source