none
none

RBA too quick on the trigger: report

07-12-2010
by 
in 

The Reserve Bank of Australia’s (RBA) interest rate rise last month may have been premature, says leading industry analyst and economic forecaster, BIS Shrapnel.

The RBA is clearly worried that the coming mining boom and current strong employment growth will lead to serious capacity constraints and inflationary pressures, says BIS Shrapnel’s latest Economic Outlook Bulletin.

But it warns the economy has hit a soft patch since mid-year and, at this stage, the recovery is still fragile.

“The RBA should have waited and kept its powder dry,” says report author and BIS Shrapnel senior economist, Richard Robinson.

“The economy will experience these pressures, but they will manifest later, not next year, and the effects of this mining boom will be different to the pre-GFC resources boom.”

The report says mining investment appears to be the only sector ready to pick up the slack.

“Higher interest rates have a disproportionately greater impact on the tradeables sectors via a higher Australian dollar,” says Robinson. “This lowers growth in output and employment in the manufacturing, education services and tourism sectors, and also helps the RBA achieve its goal of slower employment growth.

“While the RBA is aware of the effects on housing and the broader economy, its charter is to keep consumer inflation in a two-to-three per cent band over the medium term. As it has no control over a rampant mining boom, the RBA effectively acts to curtail other sectors to make room for mining – housing and the tradeables sectors thus become the ‘collateral damage’ of the mining boom.”

BIS Shrapnel says it is not sensible to derail the housing recovery. There is already a serious deficiency of dwelling stock and recent approvals data indicates current building is well below underlying demand.

“The latest rate rise will mean a further delay in this much needed upturn,” says Robinson.

While BIS Shrapnel remains confident the housing sector and business investment will continue to add to the economy, their contributions remain under threat if the RBA raises interest rates too quickly.

Related news & editorials

  1. Martin Chappell
    03.11.2017
    03.11.2017
    by      In
    With Australia’s manufacturing industry strengthening, leaders and heads of IT are weighing up which new technologies they should implement to gain a competitive edge. Martin Chappell from Motorola Solutions explains how a simpler and more focused use of data can be the best approach.
    Australia’s... Read More
  2. Sahara Force India F1
    29.08.2017
    29.08.2017
    by      In
    The pace of Formula One (F1) development is rivalled only by the speeds achieved on the racetrack. Each time the Sahara Force India F1 Team brings its car to a circuit, it represents the team’s top engineering; every time the team leaves, the car is just a baseline. Between races it must be... Read More
  3. capacitor reforming
    12.07.2017
    12.07.2017
    by      In
    The latest productivity enhancing service from Konecranes addresses the problem of keeping spare motor drives in shape so they can be relied on to enter service if required. The company’s new variable frequency drive capacitor reforming service uses a proprietary DC power source to reform stored... Read More
  4. 27.06.2017
    27.06.2017
    by      In
    The most heralded benefit of the fourth industrial revolution (or Industry 4.0) is the availability of increasing volumes of data concerning the performance of manufacturing operations (so-called “big data”). These data range from the enterprise level, to the plant level, and down to the individual... Read More