Thursday, December 06, 2007

Transparency from the oracular RBA

The Reserve Bank of Australia kept interest rates fixed yesterday but, more interestingly, has decided it will release the minutes of its Board meetings with a 2 week lag. This follows the practice of most other key central banks and enables the public to discern the RBA’s assessment of the economy. Votes will not be not recorded and individual viewpoints will not be uncovered. The minutes will provide the factual assessment that guided the RBA’s decisions. In the first minutes released today from its November meeting the RBA criticised the Howard Government for its expansionary spending plans leading into the election which made the RBA’s job harder.

This will be interesting for capital market analysts trying to plot the RBA’s policy reaction function – how policies react to the state of the economy. For mainstream economists, such as me, it will help simply to be able to judge where the RBA thinks the economy is going. I was told by a former RBA Board member that the macroeconomic information assembled at Board meetings is of extremely high quality. This information must be summarised and presented in a form comprehensible to busy industrialists and businesspeople. This should be helpful to non-macroeconomics specialists.

The minutes for the November 6 meeting which did increase interest rates by 25 basis points to 6.75% are here. The role of international credit conditions was clearly downplayed – it say the outlook for the US economy as much less favourable than for Australia - with major emphasis being placed on local inflation pressures.

By the way, the economy is roaring away and growing at 4.3% in the September quarter – the highest rate for 3 years. The Aussi dollar tumbled a bit because interest rates were not increased. It is interesting to note that, at the same time, the Canadian central bank actually cut interest rates by 25 basis points because of fears over the fallout of the US subprime market.

Treasurer Wayne Swan has stated that the Labor imperative is to contain inflation. A shrewd objective since the RBA expect the inflation rate to move above the 3% maximum of its target range in the short-term and then to drop back. Lest the RBS might get it wrong Swan further remarked that we have ‘inherited inflationary pressures’. Swan is already beginning to sprout defensive politics.


Anonymous said...

Harry, unless you are saying that the Government has created inflationary pressures in the past 72 hours, then any such pressures are inherited.

I think they will surprise many by cutting hard on unnecessary expenditures. Lindsay Tanner is an ascetic where these things are concerned, and he will have the perfect opportunity as Finance Minister.

Did you see how Ron Boswell had nine ministerial staff in his office, and he wasn't even a minister? The amount of money involved wasn't huge in the scheme of things but stuff like that is as good a sign as any that the previous government was decrepit and had to go for the good of the nation.

hc said...

I may indeed be surprised. If Rudd is as conservative as I think he is he may push reform further than the Coalition ever dared. I can still remember the Whitlam tariff cuts and privatisations as well as labour market reforms under Hawke/Keating.

One obstacle to undertasking ambitious reform is history. Rudd will recall the caning Howard took over WorkChoices. And he has a hude number of people on the left on his front bench.

Too early to tell yet.

Anonymous said...


your view of the Left is a caricature. Tanner is on the Left and he is the Minister for Finance and Deregulation. No Labor shadow minister during the 11 long years of opposition said more about the benefits of markets than Tanner.

Of the other Left ministers, none of them is Jim Cairns reborn, or even Tom Uren. Times have changed; the caravan has moved on; the debates are different now.

hc said...

I don't criticise Lindsay Tanner. Of course he is better than Tom Uren or Jim Cairns - these types of characters are part of history.

You will note I have been reasonably positive about some people on the so-called left - e.g. Gillard.

Look my side lost the election and I am trying to be optimistic.

Maybe good things will happen. For example I am quite pleased Rudd signed Kyoto. I am just saying it is too early to make judgements yet about the Labor Party's reforming zeal.

Anonymous said...

Well, my side won but I'm gloomy.

In 20/20 hindsight, the RBA should have been hoisting interest rates much harder last year. International conditions make doing it now extremely risky, but the inflation genie is out of the bottle in the domestic economy to the degree that they'll soon be forced into it anyway. We could be facing a period of serious stagflation.

I fear that the Rudd government was very unlucky in its timing in winning office. Whatever policy it pursues now will not avert the looming trouble, for which it will be blamed.

FXH said...

The USA hasn't had the full knock on from the sub prime schemozzle yet and even without that it wouldn't be too harsh to say it was probably already heading for a recession.

We have been overheated for a while and I reckoned the Reserve shoulda hiked rates earlier and harder.

No question we are heading for a slow down although I think the days when USA sneezed and we got out our hanky are probably gone.

The whole training package and lag time with skills is an embarrassment. Four years on almost no pay, and having to run a car, for an apprenticeship, if you can get one, is medieval timing.

Proper workplace reform, including articulated quals and training,linking skills training, TAFE and Uni with fair dinkum RPL, breaking of some trade and professional monopolies, new pink collar careers, and not some shonky HR Nicholls agenda is what we need.

Finish off what Hawke /Keating started.

Anonymous said...

Spiros says:

your view of the Left is a caricature. Tanner is on the Left and he is the Minister for Finance and Deregulation. No Labor shadow minister during the 11 long years of opposition said more about the benefits of markets than Tanner.

Of the other Left ministers, none of them is Jim Cairns reborn, or even Tom Uren. Times have changed; the caravan has moved on; the debates are different now.

That's like trying to play soccer with a square football. Anyone who is on the left in the ALP is by definition an economic trog. It can't be any other way.

I listened to Tanner the other night and it was , was a litany of potential future regulation and government intervention. The idiot can’t even get his economics definitions right. Heaven help us.

Anyone who talks about deregulation is a fraud and a quack if they're re-regulating the labor markets.

No amount of govt cutting will change inflationary pulses. You could fire the entire federal public service and remove all programs and still won't change that. Inflation is first and foremost a monetary problem, which causes a loss of purchasing power in the value of money.

It has nothing to do with what these economic trogs and charlatans in the ALP think it is.

FXH, please don't try to offer economics lessons unless you're trying to be the party clown.

Labor market re-regulation and climate change will be this governments undoing in a quick fashion as any up tick in the CPI and wages growth will be met with savage rate hikes.

That's why Tanner is talking about his biggest concern is inflation. He was read the riot act by the RBA
and now he's panicking. This is going to be very amusing to watch as deep recessions are terrific for those who have made allowances as it and this one is going to be a humdinger of one. Wages growth met with hard arsed rate hikes and lots of mortgaged up bodies on the street.

Anonymous said...

JC aka anonymous

stop stalking me in blogosphere. It's very creepy.

Anonymous said...

Turn it off, Spiros. I could say the same about you. You make some pretty stupid comments that need to be thrown in the water and drowned.

Anonymous said...

if JC heard anything Tanner said on econmics then he wouldn't understand it.

all the major leftwingers are rightwingers in practice

Anonymous said...

That last comment was by homer everyone. You can smell the varment even on the web. He's like a web verion of a skunk.