RBA day…no hike but still in play

There is no doubt in my mind that the RBA is still in play today. I don’t think they should tighten and I don’t think they will but neither do I think they have resiled from their super aggressive long-term expectations of and for the Australian economy over the medium to long-term. Their central tendency as we call it, so there is a greater than zero probability that they will hike rates today at 2.30pm.

 But even when they don’t hike, as we think they won’t, they still have the ability to impart their feelings on the markets via the Governors statement that accompanies the decision. Remember these are powerful documents particularly given that we also get the minutes to the meetings a couple of weeks later. In the past all we’ve had is the announcements without the minutes and an art form has grown up around trying to interpret the nuances of the subtle changes in wording from one month’s announcement to the next. Now we also get the minutes so there is even more tea leave sifting that can occur. It is policy wonk heaven.

It’s one of the reasons I did that piece, where I appointed myself as Governor of the RBA in a parallel universe, over at MacroBusiness yesterday. I wanted to have a stab at how hard it is to convey what you think without materially altering where the market is trading. If you read what I wrote you would be in no uncertainty of my view that the economy is currently slowing and the risks to the mining dominated central tendency are rising.

But even though that is what I think there is no evidence yet that the RBA actually concurs.

So we’ll be waiting with bated breath this afternoon to see what the RBA does.

But before I sign off I just wanted to put a little quote I got from John Mauldin some time ago and which I think fits in the context both of all Economic Decisions, especially by Central banks and Governments, but which is particularly poignant with the current fractious and potential unstable global economic and market environment.

 The great problem with the economic puzzles is that the shapes of the pieces can and will change as they rub against one another. One often finds that fitting two pieces together changes the way they meld with the other pieces you thought were already nailed down, which may of course change the pieces with which they are adjoined; and suddenly your neat economic picture no longer looks anything like the real world.

There is no more eloquent summation of the challenges faced by Central bankers when they sit down to make their decisions. The history of the last 20+ years tells us the Reserve Bank of Australia understands this better than most.

No change today, we hope.

greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

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One Comment on “RBA day…no hike but still in play”

  1. M-Bay Resident Says:

    I fully agree that the RBA should not hike today, I can see that the GDP figures and perhaps even the Inflation figures estimated in the SoMP are very doubtful. Also with employment indicators now suggesting a possible pull back of unemployment back into the 5’s, the RBA has some room to wait before hiking. Certainly any pressure from the govt (however subtle) will be not to hike. Imagine a hike then increase in unemployment rate, a GDP figure that drops below 1% YoY (which will be the case if we don’t see a QoQ of 1.3%) or more, housing credit potentiallay turning negative, house prices starting to slide, AUD rising so tourism suffering more as do exporters and assisting inflation to stay within the 2-3% band. All to make room for the miners and their 8% of GDP. Doesn’t gell with me.

    Nice piece Greg.

    Reply

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