The RBA decision on Melbourne Cup

Imagine for just a few minutes that I am the RBA Governor.

This is what I will be announcing next Tuesday at 2.30 pm.

…..

Thank you for coming.

The RBA board has agreed to leave the official cash rate where it currently stands.

Up until last quarter, domestic inflation has been falling and in an orderly fashion.

This national trend is in line with most other OECD nations.

The September quarter rise in the Australian consumer price index was driven by factors that are not influenced by domestic interest rate settings.

Five things drove the slightly elevated September quarter CPI, these included:

1.  petrol prices
2. building construction costs
3. housing rents
4.  rates and other property charges/taxes, and
5.  electricity costs

Raising the cash rate will not slow these drivers.

Ironically if we lifted interest rates based on the most recent evidence we could see even higher inflation.

For example, a large part of the lift in housing rents is because of the rise in costs, of which higher interest paid by investors forms a large part.

At our most recent meeting, the RBA board also discussed – and with my full support, we are hereby announcing - that the RBA aims to stop much of the jawboning that has taken place, before my tenure as Governor, when it comes to interest rate settings in Australia.

I believe that such activity undermines confidence, spooks investors and is just plain counterproductive.

As a result, the RBA and its board members have decided to remain largely out of the media - and will not make any comments regarding interest rates - until we are obliged to under our current charter.

To that end, we do not intend - at this stage - to change the current official monetary policy setting for the next six to twelve months.

This is not an official forecast – as circumstances might change - but given the longer-term inflation trend and, in line with our research and forecasts, – our reading right now is that the large lift in the official Australian cash rate is working to bring down inflation and hence they are on hold for the foreseeable future.

Thank you.

Michael Matusik
Governor of the Reserve Bank of Australia

About Michael Matusik Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive