Terry McCrann is back...

Most economists got today's rates decision wrong. But Terry McCrann was one of the few to pick it, and is well and truly back in business. HSBC's Paul Bloxham had shifted his (previously correct) November hike call to December, and so got wrong-footed. I did not personally have a view: a colleague asked for my position minutes before the decision, and I responded: "Don’t trust the RBA’s decision-making framework right now—they could do anything, fwiw." That's the truth. The RBA has confused everybody. The fact is that all of my October arguments regarding the need to ignore current CPI data, and base rate decisions today on forecasts for the future, were absolutely spot-on. The RBA has demonstrated with this decision that they were not, as claimed by many, waiting for the third quarter CPI data. If they were, they would have paused this month. The core and headline CPI prints were low. A more likely explanation is that the Board got the interest rate yips for some reason in October. The truth is shit happens. Anyone who has sat in board meetings knows this. Maybe it was the currency. Maybe it was the fact that three external directors were missing (including noted hawk Warwick McKibbin), which was very unusual. Maybe they got stage-fright. They had prepared conditions perfectly for a hike in October, and there was shock all round when it did not materialise. And let's be clear: the consequences of this decision are far-reaching: the RBA has, for the first time, broken the nexus between CPI prints and rate changes. It is now truly an 'inflation targeter', and was clearly haunted by the ghosts of 2006-07 when it was head-faked by the two low core CPI prints, which were identical to the outcomes in the second and third quarters in 2010, as I discuss below. They were evidently not going to risk making that same mistake. This means financial markets will be much less confident about forecasting future rate decisions, which is not a terribly bad thing.