Dec 20, 2011

Is the RBA Missing the Point?

Considering that China is now Australia's largest export market, I find it surprising that the RBA minutes only contain this small paragraph on the economic conditions there:
In China, most of the monthly indicators, including for industrial production and retail sales, were still consistent with solid GDP growth. However, conditions in the housing market were noticeably weaker than over the past couple of years, reflecting the effect of controls on buyers and tight credit supply for developers. Members noted that this slowing was in line with the authorities’ intentions.
RBA should be much more concerned about the situation in China - the unsustainable increase in local government debt and the political risk of the coming transition of power in 2012. The biggest challenge for the Australian government and the RBA should be finding ways to reduce its arguably overpriced currency and rebalance the economy away from reliance on the resource extraction sector. Given that "most firms ... expected wage pressures to remain contained" a more aggressive 50bps rate cut would have made more sense.

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