Tuesday, November 2, 2010

The pending RBA Interest Rate decision

It's that time again. Last month the RBA kept interest rates on "hold" even though there was a case to raise them based on the cash rate lagging the 90 day bill rate by almost 0.5%. Today, the 90 day bill rate hasn't much moved since the last RBA meeting and hence there is no case to adjust the Cash Rate Target.

As you can see in the chart below, there have been extended periods of time where the 90 day bill rate has remained range bound for up to 12 months at a time and the Cash Rate Target has remained unchanged during those periods too. This won't stop the MSM from squeezing out the usual hype on interest rates every month - instead of looking at the charts :-)


The RBA increases rates today by 0.25%. The only logic in this decision was because the rise was delayed from last month due to the election - as a rate rise straight after the election would put undue pressure on the Government.

The RBA Cash Rate Target is now where it needs to be based on historic relationship with the 90 day bill rate as discussed in the previous RBA post.

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