Monday, February 11, 2008

Strewth! The Reserve Bank tells us its about to push up rates again

I have read crime novels, but none as gripping as this morning's 56-page Statement from the Reserve Bank. Truly.

The Reserve Bank has effectively preannounced its next interest rate hike.

It has broken with tradition in its Quarterly Statement on Monetary Policy released yesterday just released by including explicit guidance about its plans for higher rates.

After expressing grave concern about inflation, which the Bank expects to stay beyond its target zone for at least two years until 2010 the Statement says that absent a further shift in economic risks to the downside, interest rates are "likely to need to be tighter in the period ahead".

It is the first time the Bank has been explicit about its plans an official communication.

It reflects move reflects despair within the Bank about developments in in inflation and is itself an attempt to shift expectations.

Read the full thing.