Friday, February 17, 2006

Fear Factor...

From the article:
Rates likely to rise: RBA
February 17, 2006

THE next move in interest rates was more likely to be up than down, Reserve Bank governor Ian Macfarlane said today.

Addressing a parliamentary committee, Mr Macfarlane said there were a range of inflationary pressures across the economy that combined meant the bank still had its finger on the interest rate lever.
"It is more likely that the next movement in interest rates will be up rather than down," he said.

One of the risks to inflation continued to be the oil price which meant headline inflation would remain near the top of the Reserve Bank's 2 per cent to 3 per cent target range.

Two things going on here:
  • Firstly, the headline does not match the actual content of the story. The headline sets up the big scary notion that interest rates are expected to rise sometime soon, whereas the RBA governor has only said that the rates are more likely to rise than fall. Anyone who has been watching the situation for any length of time knows that, but there is a large number of factors keeping the rates at their current level. The rest of the article outlines the reasons behind the RBA's decision to keep interest rates steady.
  • Secondly, is the RBA just playing games with the Australian people to keep interest rates steady?

    If the RBA says to people they might raise the rates if the conditions are right, then people will curb their spending in anticipation of the rate rise, which then stops the conditions the RBA is looking for, thus the rates don't rise. How long can this game be played until people get sick of anticipating a rate rise and it never happening, at that point they stop curbing their spending and the rates will rise causing mass panic.

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