Has the Reserve Bank overshot again?

All Australians know that credit has been tight, over the past six months.

Few, though, would be fully aware of just how tight it has been.

The Australian Bureau of Statistics confirmed yesterday that lending levels have plunged, over that time, on trend figures.

Even in June, alone, the level of commercial finance lent fell by 5.8 per cent.

Housing finance also fell by 3.6 per cent during the month.

And personal finance fell 1.6 per cent.

In the statement on monetary policy, that it released yesterday the Reserve Bank,admitted that it has been running a “quite restrictive” monetary policy in that time.

That is far from the only factor, at work, of course.

The US credit crunch has made money much harder to find – and  much more expensive, when it is found.

The Reserve Bank, itself, now freely admits that it did overshoot, several times, back in the 1980s, when the Australian economy was destabilised, more than once, by stop go policies.

There is no doubt that the Reserve Bank has had a severe problem, over recent months, with inflation

And that is still running at 4.5 per cent, a level well above the bank’s target range of 2-3 per cent.

Critics in the housing industry have no doubt about it.

They have said, many times, that the Reserve Bank has been keeping interest rates too high, too long.

Could they be right?

The Reserve Bank now admits that  “a significant moderation in (Australia’s) spending  and activity is now under way.”

It is conceding, too, that not only are US banks are likely to suffer further losses, on non performing loans, but that could have very serious repercussions, well beyond the US, itself.

The Reserve Bank is also conceding that this  could “hamper the provision of credit” and “potentially “amplify” a global “economic slowdown.”

Reserve Bank economists choose their words very carefully.

And these are very strong words, indeed.

All this, of course, has now been evident for several weeks, if not several months.

Yet the Reserve Bank has, so far,  kept Australia’s interest rates very high, throughout it all.

Too high?

That’s certainly arguable.

And even if rates are cut very soon, that action might well come too late.