Why doesn't the RBA tell us more?

One of the most common questions many economic commentators will try to answer is “What is going to happen to interest rates?”. Well, quite simply there is usually no sure way to predict what will happen, but I’m sure you know that by now.  Especially when the RBA is so undemonstrative.

The reason they are so closed mouthed is that they not only have a lot of power to change the way the economy is running with the slightest changes in interest rates, but also by what they comment on. For example:

”The Reserve bank raised cash interest rates from 5.25% to 5.5% last March.  That small hike was like firing a shot across the bows of a ship.  People took note of it and became more cautious, adjusting their household spending.  If inflation edges above 3% this year we could see the RBA push up interest rates again, although any rises are likely to be small.”  - Source: Tribeca Learning Aust Pty Ltd.

So, is there any way we find out what the RBA is thinking?

Economic reporters and economists themselves could analyse and summarise the economic state of the country at any given time, but they do not sit in on the RBA’s monthly meeting, where the decision is actually discussed and made. 

Additionally, although the RBA meets every month, The RBA does not explain or justify their decision when there is no change in rates.

So does that mean it’s been a year (last change in March 2005) since they have announced what they are thinking or what their intentions are?

No – not exactly

The last comments made by the RBA governor were before Christmas, where we heard the very generalised statement that the likelihood of an interest rate rise in the New Year was higher than the likelihood of an interest rate cut.  Still dumbfounded?  Sounds all smokes and mirrors?

It always pays to put things into perspective. Over 12 months ago, the RBA was shouting from the rooftops, that they were going to have to make a series of interest rate rises to stem the tide of property growth.  It turned out, that their SHOUTING was enough to pull us in to check and the rate rises required were kept to a minimum.

SO What’s NEXT? - TUNE IN NEXT WEEK

The Governor of the RBA - Ian Macfarlane was due to publish the quarterly statement on monetary policy, which includes commentary on the economy, on Feb 13.  Ian Macfarlane gives his half-yearly testimony to parliament four days later.

It’s probably our best chance in the current time frame of getting a better handle on second guessing the RBA’s intention with respect to interest rates over the coming months.

Tune in next week for my article on Ian Macfarlane’s half-yearly testimony to parliament.