The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Wednesday, September 19, 2012

What are the chances the RBA cuts rates in October?

For all the reasons I outlined in my AFR column on the 7th of September, pretty good. The 30 day interbank futures market is pricing in a 62% probability of a cut on 2 October, and that seems like a fair call to me. I don't personally believe they need to cut, or should cut, in October. But then I don't control the board, for better or worse. The key will be the net change in iron ore and coal prices between September and October, and the change in Australia's trade-weighted currency index. If the decoupling between the TWI and the terms of trade continues, then the RBA is more likely than not to cut. On the other hand, if the recent ToT slide reverses itself, and the global risk-on sentiment continues, the RBA may sit on its hands. We won't have a firm view until the day of the meeting. In the meantime, it would be great if somebody could create and publish a real-time terms of trade index. I note the sharp rebound in iron ore prices (see below), which is precisely why the RBA should not let the financial market tail wag its policymaking dog.