The biggest question relating to the management of the economy right now has nothing to do with next week’s budget. It has everything to do with the Reserve Bank and the board meetings that will follow it.
The question facing the board – the biggest there is when it comes to how the next few years are going to play out – is whether to hike interest rates just because prices are climbing.
On the face of it, it seems like no question at all. It is widely believed that that’s what the Reserve Bank does, mechanically. When inflation climbs above 3% (it’s currently 3.5%) the board hikes interest rates to bring it back down to somewhere within the bank’s target band of 2-3%.