Hi Ken,
I see your view - the RBA will certainly drive inflation down to 2-3%. Will they overdo it and cause a recession? They are certainly trying to avoid that "recession we had to have" scenario. But it is an inexact science and they may overshoot, I think someone once described it as driving by looking in the rear-view mirror!
Only time will tell, my own mood changes from day to day,
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Dear Dave99,
1. As I have said previously, there has been some recent change in the Glenn Steven and the RBA's underlying thinking with respect to the following areas:
a. the likely overall adverse impact on the Australian Economy exerted by the external global financial turmoil, with the ongoing Credit Crunch Crises still unfolding and given the dual speed nature of the slowing down Global Economy, with the ongoing Recessionary US, European and Japanese Economies, on one hand and the highly inflationary Chinese and Indian Economies on the other hand.
b. Glenn Stevens and the RBA has been less hawkish in its anti-inflation fight campaign since April 2008 and more willing to give more time for the impact arising from its various cumulative interest rate increases and the additional and higher rate hikes on the commecial banks, to properly work through the Australian Economy first before deciding further interest rate and cash rate increases by the RBA is neccessary.
c. Of late, both Glenn Stevens and RBA have started to observe more noticeable and deeper slowing down across the entire Australian Economy and have correspondingly expected further and more significant slow down to be further expected, at this point in time. This is despite the higher inflation figures reported recently.
2. Consequently, I am not personally "certain" myself, at this point in time if both Glenn Stevens and the RBA will actually require the local inflation figures to fall within its targetted 2%-3% inflation target before it will stop its interest rate increases.
3. So far, RBA does not "act" or appear to be so, judging from its past Board's meeting outcome made in April 2008, when it last decided to maintain the interest rate steady in April 2008, in response to the public feedback as well as the ongoing slowing down in the Australian Economy as observed on the ground and despite the same high inflation figures reported.
4. The outcome for the RBA's Board Meeting on 6th May 2008, will further confirm/dis-confirm its present ongoing interest rate policy thinking.
5. Personally, I am comfortable with how things are developing in the Australian Economy per se, given the RBA's recent change in its interest rate policy making;- though I am personally still "uncomfortable" with the various outcomes of the ongoing KR's Prime Ministership and his leadership in the Australian Federal Govt as well as Wayne Swan and his team of policy makers at the Australian Federal Treasury's co-management of the Australian Economy, in conjunction with the RBA.
6. Both KR and Wayne Swan are "un-tested" in their own economic management of the Australian Economy and presently they seem to have sort of "lose" control over the major commercial banks, who are introducing their own additional and higher rate hike increases themselves, irrespective of the RBA's interest rate policy outcomes.
7. As the new Australian Federal Treasurer, Wayne Swan has un-successfully threathened imposing new regulations on the major banks' additional or/and higher interest rate increases, with no nett impact on the various commercial banks, to date.
8. Both KR and Wayne Swan are reportedly still "hawkish" in their anti-inflation fight and both men share the same views that the local inflation rate must be brought down within its 2%-3% targetting inflation rate first before further slowing down of the Australian Economy would be stopped.
9. This is despite the present 2%-3% annual inflation rate targets has been previously set by the previous Australian Federal Govt's leadership under John Howard's Prime Ministership under different economic circumstances occuring within the Australian Economy.
10. As argued by both Bernie Fraser and Professor Bob Gregory, who were ex-RBA Governors, both the present RBA as headed by Glenn Stevens and the Australian Federal Treasury as newly headed by Wayne Swan, would need to conduct a timely review on the continued relevancy and feasibility of maintaining the same 2%-3% inflation rate target to manage the Australian Economy midst today's fast-changing economic circumstances both occuring within and outside the Australian Economy and to objectively re-cast their respective fiscal,monetary and financial policies where neccessary.
11. Both KR and Wayne Swan have reportedly "adjusted" and fine-tuned the FY 2008/2009 Budget to suit their own political objectives, instead of tailoring the Budget to suit the economic objectives for Australia of producing a strong but anti-inflationary Australian Economy so that economic propserity in Australia would continue further in the coming years.
12. Consequently, despite its own "hawkish" anti-inflation posturing and ignoring many adverse public feedback, Wayne Swan, as the new Australian Federal Treasurer is likely to continue with the A$31 billion tax cuts in his own coming Budget to be revealed on 13th May 2008 and to further inflict more economic pains on Australians which the ALP Govt has deemed to be "neccessarry", in order for Australia to move forward with time.
13. For your further comments and discussion, please.
14. Thank you.
Cheers,
Kenneth KOH