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Reserve Bank Of Australia – Rates unchanged 6.25% 2/05/2007

Posted by Adrian on May 2, 2007

As predicated by majority of the market. The Reserve Bank Of Australia left rates unchanged at 6.25%. Possibly another error by Glenn Stephens (RBA Governor), which are similar to errors by Federal Reserve chairman Ben Bernanke. These errors are the minuscule rate hikes and long pauses of rate increases. The Last Fed increases was in June 2006. Only recently Mr Bernanke has come out saying he is concerned about inflation. The is clearly a problem with financial policy within the American markets, as the Dow Jones continues to climb, despite the dramatic slow down of the housing market in America. If anything, the American markets are more disproportioned and out of control, sure there is money to be made. But, collapses could be more severe as risk grows. Not to mention the amount of leveraged risk and credit risk. It could also be said that American could be close to chronic inflation, despite other parts of the markets slowing down.

It seems that Australia is following suit, unfortunately. The All Ordinaries is rallying at 6197.9. Consumption is certainly not slowing down or steady, there is no major prices declines. Possible high wage growth (used as an inflation cue), but that could be disputed. The Australian housing market is completely over inflated and at this point one of the most expensive real estate markets in the southern hemisphere. Rents have skyrocket to 13% – 20% percent of the value of the rental market (despite normal CPI calculation), housing prices continue to climb as stock is becoming very sparse across all cities, with pressure to local and state governments to open up more land for development. Assuming people would pay high prices for potentially overpriced property, in areas that would hold very little investment return; which also could show a decline in property value (if there is a recession).

We are clearly following a American inflation model, which seems to either win favor with retailers or government. Either way, if the RBA would tighten now, before leaving inflation unchecked, we may not have such a hard landing in the future. Will we have a hard landing, or recession? Yes, when? Early to mid 2008. According to economist Thompson from Westpac from the Bloomberg (refer to Audio/Video reports) on the recent RBA rate decision. He believes that the RBA may increase rates in early 2008. Sound familiar? Read Benarakes comments that inflation still poses a risk, now remember these comments have been made recently as the American economy is looking towards a dramatic slow down – stemmed from the housing market collapse.

So, when the Australian economy slows down, inflation unchecked, will Stephens (RBA) then increase interest rates? Like Benarake and the Fed?

Bloomberg article also mentions that happy people at Harvey Norman (retail, furniture, home appliances) and Rodd and Gun (clothing) at the RBA decision today.

“Consumers will celebrate the decision, it will be good for them and that will flow through to the economy” said Gerry Harvey, chairman of Harvey Norman Holdings Ltd., Australia’s largest furniture and electrical-goods retailer. “Our business is recording strong gains and inflation is low. That’s a perfect scenario for the economy.”

Despite Harvey Norman’s continued massive growth as a major Australian retailer, I guess an unchanged rate decision will make them even happier, but of course their happiness is mixed with the credit obsessed customers. Whose happiness is balanced on a tight rope of debt and repayment.

Over the next few months the AUD will fall, possibly to the 78 – 80 cent range

Bloomberg article here, regarding RBA decision.


One Response to “Reserve Bank Of Australia – Rates unchanged 6.25% 2/05/2007”

  1. […] by zekukith on June 8th, 2007 As mentioned in an earlier post the longer the Federal Reserve and the various Asian banks, including the Reserve Bank of Australia […]

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