Friday, October 21, 2011

Why the Bank will cut if inflation is under control Wednesday

Christopher Joye sets out the thinking here:

"By bringing the price of money back to what the RBA considers to be a "neutral" level, it can signal to the community that it is not going to unnecessarily punish it on the basis of a misguided pursuit of inflation-fighting zealotry. In doing so, it builds up more goodwill with the public that can be expended when the RBA has a real inflation battle to fight."

I reported Wednesday the RBA had made as much clear.

"The cut would be presented as a technical adjustment to a changed inflation outlook rather than as a response to a weak economy. It would be described as a ‘one-off’ - moving settings from mildly restrictive to neutral - rather than as the first of a series of cuts."

Related Posts

. Field guide: What'd give us a Melbourne Cup Day rate cut

. Attention Reserve Bank: Inflation is not as bad as it looks

. Where were we? What's wrong with the CPI