why blame the rba?, page-12

Hi bbm,

I have to say that I disagree with your viewpoint concerning the RBA, for the following reasons:
1)
the RBA has raised rates and, in doing so, has cited evidence of a growing global and USA economy (and the need for global and USA rates to rise) - they have, therefore, led, not followed, the tightening cycle (as, last week, none of NZ, Canada, UK, ECB or Sweden raised their rates whilst the FED meets tomorrow);
2)
the RBA has cited concerns with medium to long-term inflation (but not with the short-term inflationary outlook), but is more than happy to allow the rising $A to weave its magic on inflation (ie: using the exchange rate mechanism as an alternative inflationary lever - a very risk manoeuvre and arguably one where the RBA is not adept at managing - having regard to previous FX escapades);
3)
the RBA also cited a growing Australian economy in 2004 with a rebounding export sector (yet this is simply not the case in value adjusted terms);
4)
the RBA cited concerns with growing corporate profits (yet, this commentary was based on results where the exchange rate was much, much lower, nearer a 12 month average of 63-64c) - already an increasing number of companies are citing profit warnings for FY04 and CY04;
5)
today's mid-term budgetary review has also stated that the rising $A will now knock 1.5% points off CY04 GDP (even more, if the $A stays above 72c) - so, who's deflating the economy and prospectively precipitating a rapid deceleration of economic activity going into 2H04?

You have suggested that the RBA responded to greed.

Maybe so. But, more likely, the RBA has also been spooked into trying to 2nd guess the economy (and its track record in this regard is largely poor).

Back in October, I argued for the November rate increase, but more recently rgued against the December increase.

It's a pit, however, that the RBA does not take stock of the real economy. There was no justification for a rate rise going into December and this will soon be borne out.

So, why the rate rise - to use the exchange rate to control inflation, due to the emerging fear that inflation will break out (above 4-5%) going into 2005.