RBA’s views on economy add to speculation of rate rise

Comments by The Assistant Governor of The Reserve Bank of Australia, Mr Glenn Stevens, late last week have all but convinced markets that an increase in interest rates is imminent.

Mr Stevens was reported as saying that the domestic economy had narrowed to a point where the gap between the economy’s potential full output and what was actually being produced meant that it had become difficult to tell just how much slack remained in the economy. The critical decision on whether it needed a slow down rested heavily upon judgement and upcoming data although Mr Stevens was prepared to concede that the economy was not too far from some basic notion of its potential output.

Such a concession is usually as firm an indication markets and commentators can expect for central banks like signal their moves and intentions rather than blatantly divulge them.

Given that the next Reserve Bank meeting is scheduled for Tuesday November 2nd, which is none other than Melbourne Cup Day, we’d be placing our bets on a rate rise of 0.25 per cent. Which is not to say it’s a sure thing.

However we may find our bet riding with the red-hot favorite if CPI figures, which are due for release on October 27th, come in higher than expected.