Wednesday, 20 October 2010

Toss a coin and take your pick.

Melbourne Cup Day will be an even money bet according to the Crikey Interest Rate Indicator. The market cannot split a no change decision by the Reserve Bank Board and an increase of 0.25 percentage points in the official rate.
20-10-2010 crikeynovemberinterestrateindicator
I notice that this morning one of the previously interest rate hawkish economists is now moving to the side of the no increase doves.
According to Westpac Chief Economist Bill Evans, the decision by the Board to hold rates steady in October surprised him:
Until the release of the September Board minutes we had expected rates to remain on hold until February next year. However such was the stridently hawkish tone of those minutes we had little choice but to forecast an immediate rate hike. The tone of the October Board minutes is much more dovish.
Recognition is given to the impact of the high Australian dollar to the inflation outlook. A less confident tone is adopted on both business investment and household spending. Overall we assess that despite the ongoing message that at some time rates will be rising they are now likely to be on hold until February.”
Unless there is something quite surprising in the consumer price index figures due out next Wednesday and inflation is unexpectedly shown to be increasing, I expect the newly dovish Mr Evans to be right. I for one am backing the no rise option.
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