Inflation reading gives RBA the rate cut green light it never really needed

Inflation reading gives RBA the rate cut green light it never really needed
Inflation reading gives RBA the rate cut green light it never really needed

This week's low inflation reading has confirmed a rate cut in a week’s time.

Many punters will argue the Reserve Bank did not need to wait for this particular green light before adjusting the cash rate down, and should have been listening to the line-up of angry homeowners, builders, retailers and manufacturers hooting at Glenn Stevens to put the car in gear and get a move on.

Even the likes of Channel 7 Sunrise host David Koch (a self-confessed admirer of Glenn Stevens) has hit out at the Reserve Bank for being too overly cautious and too slow in responding to the current economic downturn at a time when the government is determined to cut spending to achieve a budget surplus in the next financial year.

On the ABC’s Inside Business program this weekend stockbrocker Marcus Padley said he could not believe that the Reserve Bank was still waiting for the inflation figure given the struggles facing the retail and housing sectors.

“Inflation surely is not the issue right now – you have a retail sector and a housing market [literally] on fire and here you have the RBA telling us they will wait for the inflation number, they’re simply missing the point,” said a gobsmacked Padley.

Perhaps facetiously, some economists have suggested that if the RBA is so reliant on the quarterly inflation data then perhaps it should only meet every quarter to decide on interest rate settings.

Alternatively, they could put more emphasis on the range of other more regular data in making an assessment or put more faith in the forecasts of economists, which have been forecasting a low March quarter inflation reading for some time now.

For now the debate will continue to rage about how swiftly the Reserve Bank is responding to the two-speed nature of the economy and why it is placing so much emphasis on containing the effects of the mining boom when other sectors are in real strife.

That is until the RBA makes its May 1 rate announcement and we await to hear whether the banks will pass on the full rate cut or leave borrowers with just a few crumbs.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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