The Reserve Bank
fulfilled expectations again, announcing at 9.30am today that they would leave
the overnight cash rate target at 5.75%. Yesterday Henry, like almost
everyone, predicted the result, saying that he “has no doubt that Ian Macfarlane
will be seeking to hold off a further rate rise until his loyal deputy gets the
nod as his successor”, which comes in September.

The worthies at Bloomberg
surveyed 25 eminent economists. 15 are expecting another interest rate move
by the end of the year, and seven predict a move before the September RBA
meeting.

With
second-quarter Consumer Price Index figures due on July 26, high oil prices, low
unemployment figures and high labour costs could force the RBA’s hand, but Henry
considers it more likely that Ian Macfarlane will wait until the full impact of
the May interest rate hike and income tax breaks is felt, which may be later in
the year.

In just under two
weeks, US Fed Chairman Ben Bernanke is presenting his Semi-annual Monetary Policy
Report to the Congress, again allowing the markets to figure out if he’s a hawk
or a dove. Henry believes he will again walk the fine line between maintaining
vigilance again inflationary pressures and leaving the gate open for a pause in
tightening policy. If he does undertake the pause, then expect a bolstering of
the Australian exchange rate. As of 8.40am in Sydney, the Australian dollar was buying 74.41
US cents, up over 2% in the past week since hitting a two-month low on
29 June.

Industrial
Relations is still proving to be a thorny issue for the Howard administration.
Yesterday’s headline in the Oz exclaimed “IR
delivers Labor big poll lead“, and they return today with a Labor
poll
that shows John Howard’s “popularity has taken a considerable
hit”.

Paul
Kelly
argues that a basketful of good policies may not win them elections – “It is
likely that Labor will win the Industrial Relations battle yet lose the larger
2007 election war.

“Paul Keating has
told Labor it needs policies to win the new class of workers created by 20 years
of economic deregulation. Yet Beazley is heading in the reverse direction. Even
when Labor brings down policies to attract these people, its pitch will be shot
by the demand that it be judged by the icon of collective
power.”

More reading at
Henry Thornton.