RBA Jawboning

Glenn Stevens commented more directly on Monetary Policy yesterday in a speech than he usually does. The RBA has access basically to two tools. One is the actual cash rate and the other is the ability to influence the expectations of future cash rates. The latter is called 'Jawboning' and that's exactly what Mr Stevens did yesterday. The market has now factored in further rate hikes and just this action has a limiting effect on the economy.

Mr Stevens was preparing the country for a rate hike but at the same time justifying it to regional and other 'non-booming areas'. He explained that the 'two-tiered' economy notion was overblown as there is spillover from booming areas to the rest of the economy over time.

I've pasted a couple of key quotes below as well as a link to the speech - the first couple of pages are interesting in that it explains their approach to Monetary Policy.

"But if downside possibilities do not materialise, the task ahead is likely to be one of managing a fairly robust upswing. Part of that task will, clearly, fall to monetary policy."

"Often, the expectation of what will happen to the cash rate in the future is just as important as, or even more important than, the level of the cash rate today. For this reason what the Bank says – or what people think we have said – can be very influential on markets and behaviour. It is for this reason that central bankers are usually so guarded in public comments."