Tuesday, 19 November, 2019
Terry McCrann: RBA was and will keep ‘assessing’
The whole story..
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Terry McCrann: RBA was and will keep ‘assessing’
Some commentators think the Reserve Bank Melbourne Cup Day meeting minutes show the board was ‘close to cutting’ rates. They don’t, it wasn’t and it won’t in December, writes Terry McCrann.
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November 19, 2019 9:05pm
The Reserve Bank did not “seriously ponder” a “shock” Cup Day rate cut — as some have interpreted, or rather misinterpreted, the minutes of that meeting.
This is not just about getting ‘yesterday right’; it is even more important about not building in a misunderstanding of what the RBA is likely to do at its last meeting for the year in two weeks time.
The danger broadly is that if it had come ‘close to cutting’ in November, surely that would make a cut more likely or even ‘probable’ in December?
No, that’s simply wrong.
Absent some shock and serious negative development — or, developments, plural — it will leave the rate unchanged again in December; and it will then be on to February.
It then becomes critical to understand what the RBA will be doing through December and January (and indeed, is doing, currently in November) ahead of its first meeting back for 2020 at the start of February.
Too many commentators are prematurely ‘locking in’ a further official rate cut at that February meeting.
Instead they should read and understand the key word in the minutes and a word that I was very pleased to see. Assessment.
As I told you nearly a month ago, the RBA was now in extended “assessment mode”.
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As the minutes put it on Tuesday, the RBA would make “another full assessment once more evidence of the effects of the earlier monetary easing had become available”.
Yes, the first part of that sentence was: “The Board agreed that a case could be made to ease monetary policy at this meeting.”
This though, was not a revelation of a debate of ‘cut versus hold’ around the board table. It was more simply — and appropriately — a statement of real-time dynamics of assessment around a full discussion of the complexities challenging policy decisions.
Yes, a case could be made for another cut immediately.
But the overwhelming logic was to give some time for the earlier rate cuts — and ‘everything else’, including both the one-off tax cut and the sharp turnaround in the (Melbourne and Sydney) property market — to play out awhile.
And that ‘awhile’ carries us through January.
Two other things were critical for underscoring this extended ‘assessment mode’.
They were — are — changing positive (if true, rather muted) dynamics in the global economic and financial spaces, and a growing (and welcome) concern inside the RBA that a further rate cut could be at best pointless and more likely actively negative for confidence and for the economy.
MORE TERRY McCRANN
There’s a final point that got lost in the ‘Cup Day rate cut excitement’.
Like every monthly RBA meeting — with very, very few exceptions — the board gathers with a specific recommendation from the governor and management, locked in the papers they get the previous week.
Self-evidently that recommendation was not to cut.
In the near 30 years and over 300 board meetings of this process, I am not aware of any recommendation being changed by the governor at the meeting, far less rejected by the board.
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