Back to school for the RBA

It's homework time for Reserve Bank directors. From the public statements it would seem that the higher interest rate zealots at the Reserve Bank are happy to accept a breather at the August board meeting unless there is a very big rise in the consumer price index.

Thanks in part to the work of the directors, the Reserve Bank has acknowledged that a few months ago it had been wrong on growth prospects and so it has lowered growth forecasts (Waking up to rates wisdom at the RBA, July 7). If the directors again do their homework properly they will place on the board table consideration of interest rate cuts and confine to the dustbin any thought of interest rate rises.

As this morning's Liddington-Cox graph shows, the Australian bond market understands what is happening in the local economy and realises that it is only a matter of time before the Reserve Bank wakes up.

From what I can see, the only prices rising are government-controlled or regulated utility organisations, such as power, water and local councils. They live in their own world and are not affected by what is happening in the economy.

It's very important for the Reserve Bank directors to do their own homework because their job is to bring to the board table what is happening in the real world.

If the Reserve Bank directors do their research properly this is what they will find:

-- The big home builders will tell them that home building in Brisbane is down 30 per cent. In Sydney, it is down 15 per cent, and Melbourne, 20 per cent. However, regional Victoria is a bright spot.

-- Along with the home building decline, land sales are dreadful so the trend is set to get worse.

-- If they yarn with Harry Triguboff, he will explain that local buyers cannot afford Sydney apartments because of the current level of interest rates. Mainland Chinese are responsible for 80 per cent of the sales (Pivoting on China's prosperity, July 12).

-- Consumer confidence is at low levels and all retailers are struggling with many stores closing down. Yesterday, Stephen Bartholomeusz gave an excellent coverage of the management forces behind David Jones' sharp decline (Why David Jones is on the rack, July 14). But there is a second factor – many higher income middle-class people are bleeding badly and have not been insulated from the downturn.

-- Apart from areas like commercial building, where there is dreadful management, wage levels are being constrained.

-- The global forces are not good. These forces have been well documented in Business Spectator and are being reflected in share price falls.

-- The carbon tax debate has further reduced confidence. The ALP's numbers people now realise that, irrespective of the carbon logic, it is unsaleable when people are bleeding from a higher cost of living and restrained income (Gillard needs a new policy distraction, July 14).

-- We clearly had too many resource projects at once but some are now starting to re-consider.

I am sure the RBA directors' lists of problems in the economy will be even longer.

I do not expect August will see a rate cut, but if the Reserve Bank directors do their work it will be at least mentioned as a possibility in the commentary.