The Australian's David Uren, who has published an excellent column today, also seems to have some good information directly from the RBA on what it thinks about talk of a 50 basis point cut. This is meaningful--Uren does not ordinarily given a strong view on what the RBA thinks, or will actually do, unless he has heard as much from the horse's mouth. In this context, it is interesting to observe how dismissive he is of folks arguing for a 50 basis point cut (eg, Terry McCrann). I was personally surprised, although I certainly agree with the logic he outlines:
People speculating that the Reserve Bank may cut by 50 basis points tomorrow are hyperventilating.
The downgrade in the bank's growth forecast is unlikely to be dramatic. National Australia Bank's business survey shows conditions are still in line with the long-term trend and unemployment has remained steady for about two years.
The March quarter inflation report was soft, but there is nothing to suggest that the economy is entering a recession.
The Reserve Bank's monetary policy statement, which will be published on Friday, will still show growth over 2012-13 of at least 3 per cent.
The bank will not be badgered into repeated slashing of rates by those parts of the economy that are on the wrong side of the structural change which the high value of the Australian dollar is forcing. It is unlikely that the bank judges that its cash rate is far from where it needs to be.
The RBA would be happier to see the political heat taken out of the debate on interest rate decisions, but it is unlikely to get its way. Stevens has commented that profitable banks are vastly preferable to unprofitable ones.
The government, if it reflected for a minute, would come to the same conclusion, as the banks deliver almost 30 per cent of its badly needed company tax revenue. Unlike the mining companies, the banks pay a high average tax rate on their earnings before depreciation and tax.
