I repeatedly argued this was the case last year. You can hear it from the hourse's mouth in my column (see link at end):
Today the RBA will likely keep its cash rate steady on the basis that it believes the economy is travelling around “trend”, inflation is sitting in the middle of its target band, and market lending rates are about where they need to be. To this line of thinking, rates are priced to perfection, or as close to perfection as one could reasonably expect to get.
And it is hard to see how Australia’s banks will undertake a second round of “out-of-cycle” hikes given that funding costs have plummeted since their spike in January. By way of illustration, CBA issued a AAA-rated covered bond at 1.75% over its benchmark rate in late January. Today the cost of that same bond is 50 basis points lower at circa 1.26% over.
As another indication, the Australian credit default swap index, which is a proxy for financial stress that measures market perceptions of the chance Australian companies will default on their loans, is today back around its July 2011 levels, and nearly 40% lower than its late 2011 highs.
Having said that, we know that the RBA’s complex board is not always unified around interest rate decisions (in striking contrast to what some media commentators have claimed). Outgoing board member Graham Kraehe revealed in The Australian newspaper several weeks ago that the seven non-RBA members of the board, which include six dovish private-sector representatives, had “regularly” rolled the governor’s (or “staff”) monetary policy recommendations:Read the rest of the column here.
“There have been a number of occasions when the basic recommendation from the staff hasn't been adopted… I would not suggest there has been an increase when the staff said there should be a decrease. But we (the non-RBA staff) have said, 'Let's not move, let's sit'… And that has happened reasonably regularly."
Note how Kraehe unwittingly concedes that the non-staff members of the board have never argued for higher rates and confirms their implicitly dovish bias. This week we also had the ALP-aligned economist Stephen Koukoulas inform us that there are “many” current board members who want to see lower rates:
“Whether the RBA cuts in March is not at all clear. There is no doubt it could (should) cut interest rate without fuelling a lift in inflation. This judgment is shared by many board members”
You can read the rest here.
