Name: CHAN, Sin Fong
Subject: RBA and Interest Rate Increase
Visit Time: 29/05/2008 12:41 AM
Remark:
One of the key determining parameter used by the Reserved Bank of Australia (RBA) to increase interest rate is the inflation rate, which is derived from the consumer price index (CPI). The CPI is calculated based on a "basket of goods". The rising price of petrol has a flow-on effect on other items such as utility, transport, foods, wages, etc. These items, plus petrol are all included in the basket of goods. Using prices to determine inflation rate is rather illogical and nonsensical.
The higher prices, through no fault of the consumers, should not be considered as inflation. Redefinition of the word inflation based on increase in quantity consumed instead of money expended seems to be fairer and equitable.
The action taken by the RBA Board to increase interest rates for the past few months may help to dampen demand in many sectors, but the longer term impact may lead to business closure, loss of employment, rise in marriage / family breakup, mental and psychological suffering, theft and burglary. In addition to its main responsibility in determining monetary policy, and maintaining financial system stability, the RBA should also take on board social consciousness.
The methodology employed by the Reserved Bank of Australia’s (RBA) to increase interest rate can aptly be described by the acronym GIGO – garbage-in-garbage-out.
