Investors need to understand the real reasons for the RBA’s interest rate settings so they can forecast when rates will rise and set their portfolios appropriately.
The Reserve Bank of Australia has been successful in convincing market economists that the cash rate setting of 0.10 per cent is appropriate. With inflation exceeding 3 per cent (on any measure) over the past six months, the cash rate setting is clearly being set on some basis other than inflation.
Economic logic and social fairness both suggest that the RBA is not telling the truth when it suggests inflation must be sustained above 2 per cent before it adjusts cash rates higher. Today’s cash rate is at least 3 per cent below inflation. Savers and retirees are being torched by these rates. Yet the RBA says rates are stuck here for at least another year.
