Senior economist Matt Grudnoff has written on the ‘fearful and frozen’ RBA ahead of today’s decision:

The RBA has cut interest rates three times this year and each time it has come in the board meeting after the Australian Bureau of Statistics has released its quarterly read on inflation. It seems that each time it cuts rates, it needs to be reassured about where inflation is.

This means that interest rates are being set for where the economy was four months ago and not where it will be in the next year.

Each time the board has got its forecast wrong, it has been because it has misjudged how unemployment impacts inflation.

Recently it has been overly concerned that unemployment is too low. It wrongly believes that businesses face a shortage of workers that will lead to rapidly rising wages, which in turn flow into higher prices and higher inflation.

Despite this, inflation has steadily fallen.

With the ABS not releasing its next quarterly inflation figures until the end of October, we are unlikely to see the RBA act until its November meeting.

The ABS did release monthly inflation figures last week, but these are far less reliable than the quarterly numbers. The bank has consistently said the monthly figures have little impact on its interest rate decisions.

For the 12 months to August, inflation increased to 3 per cent, but at the same time prices in August fell 0.1 per cent. The RBA’s preferred measure, the underlying rate was 2.6 per cent. This is almost exactly in the middle of its inflation target band of 2-3 per cent.

The Reserve’s inability to understand the drivers of inflation spells ongoing problems for Australia. By always looking backwards, it is reducing the effectiveness of monetary policy.

But it also means that unemployment is higher than if it better understood what was happening.

You can read the rest of that, here