RBA Governor Glenn Stevens said yesterday in Brisbane:

The Australian economy is on the cusp of the seventeenth year of the expansion which began in the second half of 1991. There is, at the moment, moreover, a high degree of confidence about the future, with share prices near record highs, property markets firming again and borrowing proceeding apace.

The world economy is doing well:

The most recent outlook released by the IMF in April forecast global GDP growth in 2007, measured on a purchasing-power-parity basis, at just under 5%. This is down a little from about 5½%  in 2006, but that was the fastest growth for over 30 years. The projected 2007 outcome is still well above the long‑run average growth rate of around 3½%.

[Goods and services] inflation seems to also be under control. “It is also noteworthy, and very important from a global perspective, that underlying inflation appears to have come down in the US somewhat over the past six months, having drifted higher for the previous six months.”

Stevens looks at the Australian economy in more detail, as is appropriate:

Compared with what we expected a year ago, then, growth has turned out to be stronger, employment higher, but underlying inflation a little lower, and wages growth has been steady in the face of unanticipated labour market strength. This is quite a favourable set of outcomes, and should prompt us to ask how it all fits together.

Stevens (of course) demolished the “urban myth” that there could be no rate hike in an election year, but the overall message seems to support Henry’s recent judgement that the Reserve will lie low unless the economy begins to glow in the dark.

And note that “inflation” is implicitly defined as “underlying, goods and services inflation” by the Reserve. Asset price inflation, which was being added to as Stevens spoke, and which is booming again today on the ASX, received not even a mild nod. This is a big issue for central bankers, but so far at least they are keeping their thoughts within their marbled halls.

Henry’s “no immediate action” view is supported by the gurus at St George Bank.

St George explains that when the December Quarter CPI data is released:

…the forecast horizon will have extended out another year, the federal election will be out of the way and spare capacity in the economy will probably have diminished further. We believe that this will be the appropriate time for an interest rate increase. Hence, our Q1 2008 rate rise forecast.

Read more at Henry Thornton.