1. News
2. ›RBA Too Quick With Rate Trigger BIS

RBA too quick with rate trigger: BIS

Research house BIS Shrapnel has accused the Reserve Bank of being too quick to raise interest rates by 0.25% in November, just as the RBA Board prepares to meet for the final time this year.

A statement from BIS Shrapnel released today said the RBA rise "may have been premature", and that worries over the coming mining boom and current strong employment growth leading to capacity constraints and inflationary pressures may have been overblown.

BIS Shrapnel's latest Economic Outlook Bulletin reports that the economy has in fact "hit a soft patch" since mid-year, and at this stage recovery is very much "still fragile".

Richard Robinson, BIS Shrapnel senior economist, said the RBA should have waited and "kept its powder dry." "The economy will experience these pressures, but they will manifest later, not next year, and the effects of this mining boom will be different to the pre-GFC resources boom," he said.

The fragility BIS Shrapnel outlines in the bulletin comes as a result of no established recovery in dwellings, doubtful overseas economic condictions, cautious consumers and the difficulty for businesses to invest because of the high cost and unavailability of finance.

Robinson, who wrote the report, also accused the RBA of making the housing sector into "collateral damage" of the mining boom. "As it has no control over a rampant mining boom, the RBA effectively acts to curtail other sectors to make room for mining - housing and the tradeables sectors thus become the ‘collateral damage' of the mining boom," Robinson said.

Rates are widely expected to remain on hold today. After previously tipping a February rate rise, NAB actually pushed its forecast for the next RBA cash rate hike back to May 2011 yesterday.

By Ben Abbott | 07 Dec 2010