Good luck. Three things we know about Glenn Stevens: (1) he is an inflation hawk and has consistently surprised the market on the upside with rate hikes; (2) he is his own man (remember November 2007), and, in contrast to his predecessors, is not going to be influenced by Treasury; and (3) for three-quarters of his four year term as Governor, he has failed to achieve the 2-3 per cent inflation target he committed to meeting if we use the RBA's "preferred" measures of inflation (ie, the trimmed mean and weighted median). In short, the Governor runs the risk of a credibility crisis if he does not thump inflation back into the target range. My sentiments on the Budget revisions were nicely captured by UBS's economists today:
"Overall, the government appears to have taken a very conservative (and arguably below consensus) view on the outlook for growth and unemployment. While the higher terms of trade and commodity prices do enough to offset this (and the revised cost of mining tax changes), and deliver a modestly better budget track, we'd suggest there's plenty of room to see a significantly better budget outcome eventuating over the next couple of years. Beyond this, today's revisions leave us with a broadly similar budget track (with the net debt peak reduced just 0.1%pt of GDP) and a slightly more confident return to surplus in 2012/13. Finally, the slightly better forecasts for real and nominal GDP for 2009/10 - the year with the peak budget deficit of $57.1bn - suggests that this year too is cum upgrade (though no details are provided today).
For monetary policy, this is a kaleidoscope of forecasts seemingly designed to question why the RBA would ever think of tightening rates over the next year or so…trend GDP, steady unemployment rate, headline inflation in the target band, and a return to budget surplus. We are nonetheless left wondering where the near 10% nominal GDP growth that's forecast (and that sustains the budget profile) ends up in the economy? Indeed, the fastest nominal GDP growth in 20 years delivers about trend real growth and no fall in unemployment. If such 'cash flow' has no impact on investment, jobs, wealth or wages, then it must all be saved."
