Terry gave me a belting last year for suggesting the RBA's board could ever reject a staff recommendation. (Terry and I do enjoy whacking one another.) In 2012 he has, however, notionally embraced this idea with suitably significant doses of RBA ex post facto "spin". It goes along these lines: "of course, the board only ever rolls us when we want them to do so." Yeah right, Tezza. Boards don't work that way in the real world...
In today's column Terry again concedes, for the record, that there has been a change in the dynamics between the RBA staff and the bank's board (with the caveat that the change has been "led" by the Governor). He also tries to argue that the RBA staff really actually wanted 50 over 25 last month. Finally, he reaffirms the change in his rate call from Friday night, when he lent in favour of no move, to a cut today. Terry is correct in arguing (as I did earlier in the week) that all three contingencies--ie, no move, 25, and 50--are quite possible today. This is very different to last month when the choice was between 25 or 50, with the former marginally shading the latter in probabilistic terms.
Today I'd guess at no move or a 25 cut--with equal probabilities--over 50. Like Terry, I was in "camp pause" until a few days ago, and have reluctantly relaxed my grip on that view of the world. If I was running the RBA, I would have cut by 25 in November, held steady in December, cut 25 in May, and paused today. There is no rush to slash rates right now, and there is ample opportunity to do so if and when we are sure the global economy is starting to unravel. Why not wait for more information? And what is so wrong with an intra-month meeting? If you are in a crisis--you are in a crisis. You are not going to kid anyone otherwise. I think the RBA has been over-engineering monetary policy on the downside since late last year. They have absolutely no idea what is going to happen to the global economy over the next 12 months, and should not be in the business of providing financial markets with cheap insurance. When all is said and done, the staff know they have been bullied into some of these moves. Here's Mr McCrann:
A range of counter-factors speak to a rate cut. They add up to the no-change case in reverse, while also arguing for 25 points over 50 points. Simply, there's no harm or even particular risk in cutting by 25 points. And indeed, it's clearly the 'no regrets' option. This is so, especially as Governor Glenn Stevens has shown a clear aversion to having between-meeting rate changes. Even in the darkest days of 2008-09 he didn't -- waiting for an official meeting to then deliver 100-point blockbusters. So it would require him to be courageous -- in both the Yes Prime Minister and literal meanings of the word -- to be prepared to sit out the next, likely extraordinarily volatile and perhaps even devastating, four weeks without having had a cut. Further and critically, it would require him to demand the rest of the board join him in sitting out those four long, long weeks. I doubt that he will. This has to be put in the context of the changed dynamics that have developed at these board meetings. Putting it simply again, this is a willingness by Stevens to allow the board to 'choose' when management is (relatively?) relaxed as between two alternatives. Given that option, this is not a board and nor are these the circumstances for 'choosing' to leave the rate unchanged. This is on my assumption that Stevens will be allowing the board to 'choose' between unchanged and 25 points. The really left-field possibility is that he chooses to lead the board in making a 50-point cut.
