RBA Tightens

Very simply what the RBA did yesterday was start to wind back some of the 'emergency' element in the cash rate. I don't believe that they believe we are at the cusp of strong growth so once they wind back the 'emergency' element they'll pause for a while. They said as much in their final paragraph (pasted below).

In the statement the RBA acknowledged that the rest of the world will continue to struggle but that growth coming out of Asia, particularly China, will have a significant impact on our region.

They acknowledge that growth in Australia, while stronger than expected, may remain soft:

Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected.

Concluding paragraph:
In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however. With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy. This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.

Rates have moved up a little but much of the tightening was priced in.