One of the wise old men of Australian journalism starts his RBA coverage again today, and teaches us at least three things that were not widely appreciated. I am assuming Tez has the benefit of discussing these matters directly with the RBA, unlike you and me (unless you're an overseas hedge fund, which are regularly granted private audiences with the central bank). And he has creatively come-up with yet another label for me! His insights include:
1/ "The RBA's decision to cut in December was a very, very, finely balanced thing. It really could have gone either way." I myself argued this, but some thought it was a slam-dunk.
2/ "What helped tip the balance was a belief that the RBA could effectively have a half cut. That's to say, the RBA fully expected the banks to only deliver cuts of 15 points. That must now play into the coming decision, but it plays into the decision very messily." In short, the RBA was apparently only punting on half a cut being passed through and, yet again, got the banks' reaction functions wrong (the 'again' bit refers to November last year).
3/ "It's also incidentally going to be a messy year for inflation with the arrival of the carbon tax on July 1. Messy, for everything and everybody." This is an important point that I had sort-of under-weighted. The RBA will be worried about the carbon tax's impact on inflation expectations, especially in an environment where house prices are rising again, and likely to rise faster and further after more rate cuts.
