News Ltd’s senior commentator, Terry McCrann, went in hard calling an RBA rate cut yesterday in four separate articles published within almost as many days. He deliberately used the same words to call the cut too: that the RBA was "almost certain" to cut. That's Terry's code to his readers that "I've got the good oil on what they are going to do." The financial markets usually trade off his insights.
While disagreeing with him--I called an unchanged cash rate--I speculated that these bizarrely bold predictions over a week prior to the actual Board meeting, and prior to the internal meeting that formulates the staff's recommendations, were very likely originating from either a dovish Board member (of which there are many) or a politician seeking to maximise pressure on the RBA by creating expectations of a cut. In his column today, Terry unwittingly supplies evidence that points to a Board member:
"Now three big points about the RBA's decision upfront. One, it makes a big, a huge statement about the board that actually makes the decision on the recommendation of the governor, Stevens. More particularly, that's a combination of two things. The board continues to be united with Stevens. I think you can take it as read the board did not overrule a Stevens recommendation to cut the rate."
Subtly McCrann is saying: Okay I was told by some Board member they were certain to cut yesterday, and I invested my reputation in that view in my four columns. But it seems this Board member could not convince the Bank's staff to cut a third consecutive time, and, ultimately, Glenn Stevens (or was it Phil Lowe?) won the day. McCrann continues:
"Along with this, is it not the 'soft' board feared by some commentators, in the wake of some high profile departures -- economist Warwick McKibbin in particular, along with business leaders Graham Kraehe and Don McGauchie -- and their replacement by former Keating adviser and economist John Edwards and industry lobbyist Heather Ridout. This is a board which still backs the governor and backs him in NOT taking the easy decision. Nothing could have been easier than delivering the 'certain' rate cut, and then seeing both the banks only half-cut. The RBA would have been able to cut and win affection and plaudits from low-rate people -- without delivering much of an actual lower rate."
I completely agree with McCrann that today--finally--after failures all last year, the RBA staff belatedly developed some backbone and, based on McCrann's revelations, evidently resisted Board pressure to cut rates, channelled via McCrann so as to maximise public expectation of one.
We know from The Australian's David Uren that there was a cabal inside the RBA that was not happy with either the November or December rate cuts (I predicted the first and was 50:50 evens on the second, which the RBA itself described as a line-ball call). I have consistently maintained that December will likely prove to be a policy error.
Where I disagree with McCrann is in relation to the argument that this is a Board capable of making the "tough" decisions, and one which is unified with the RBA. The facts are that the RBA 'surprisingly' opted-out of the tough rate hikes in the first half of 2011 (McCrann and I both favoured one in August), even after forecasting it would do so. It reportedly went weak-kneed in part because of Board pressure. And at the first small opportunity it was given to cut rates, it did so with vigour, in November and then, after telling journalists this was to be a once-off, with a knee-jerk insurance effort again in December.
Recall that this is a Governor who had repeatedly argued that we should expect several widely spaced hikes as policy became gradually more restrictive based on the RBA's 2-3 year forecasts. Instead we got no hikes, and two contiguous cuts, and likely only just missed a third one yesterday.
To date, we have learnt that this is an RBA that finds it easy to make easy decisions, and harder to make hard ones. That's understandable given the Board's complexion. Committees and consensus are killers of decision-making certitude.
