RBA plays a dangerous game

The Australian situation is fraught with reason to worry. One might contrast our situation with the exemplary conduct of monetary policy in New Zealand. Across the Tasman, Governor Bollard saw a need to tighten to quell a housing boom, and did not hesitate, matching rhetoric with action. So much so that as 2004 closes, he has been able to signal that his tightening cycle is over. In Australia we remain in limbo, with a central bank that, relatively speaking, is all talk and no action.

Ian Macfarlane is engaged in a dangerous double play. He is either trying to allow time for inflated goods prices and wages to catch up with property prices, which is ok while it lasts but risks igniting new speculative excesses (including reigniting the property boom). Or he is playing chicken with his opponents - be they in Treasury or amongst his political masters - and is hoping for some sensible fiscal action. He is obviously unwilling to act pre-emptively to prevent what could be a serious mess. Our problem with that is that he is gambling with Australians’ welfare.

It would be better if he took the Australian people into his confidence, told them they had been living beyond their means, and raised interest rates. It is a case of better late than never.