This was reached at the peak of the global financial crisis. It would though, be neither surprising nor shocking if it didn’t.
Not surprising, because like all the rate decisions in recent months, this one is again finely balanced. It could reasonably go either way.
Not shocking, because the – fully understandable – bleats from retailers aside, it really would not be the end of the world, if the RBA didn’t cut.
We all get terribly fussed over 25 points, which ultimately are neither here nor there.
Another 25 points off the official rate – perhaps 20 points off most home loan rates, but also it is very important to emphasise, 20-25 points off rates on deposits which also are key to spending, as well, is not going to unleash a spending binge.
Yes, it would probably give the critical three weeks to Christmas and the two weeks through the new year a boost.
But it’s not going to miraculously save the retail industry from its much more fundamental and much more intractable structural problems.
In particular, that we were already ‘overshopped’ in the good old days before the GFC. And both the post-GFC switch from spending to saving and the explosion in online shopping – more what it does to bricks and mortar margins than the actual dollar sales lost – have made it very tough at the retail coalface.
The 25 points off the cash rate, even adding it on to the 150 points of cuts already delivered, is not going to wash away all those really fundamental structural negatives.
Now the recommendation that governor Glenn Stevens will take to the board meeting next Tuesday was formalised yesterday afternoon, as it always is.
The recommendation, in the overall board papers, however, only goes out this afternoon, so it could be changed if there was shocking new information.
On the assumption that the recommendation was to cut, ‘something’ would have to suggest we were about to be ambushed by a sudden and unexpected boom. To persuade the RBA to stay its hand again. Some commentators have suggested that today’s capital spending numbers will be critical to the rate decision.
In practical terms, that could only be in one direction – indications that capex spending intentions were slowing faster than the RBA already anticipates. That is to say, to confirm the recommendation to cut.
As Terry McCrann explained two weeks ahead of the Cup Day meeting – at which the overwhelming majority of commentators expected right up until the day of the meeting, to see a cut – that there was in fact no way the RBA would cut after the too-high underlying inflation revealed in the September quarter figures. That was confirmed by Stevens in his statement on the day of the meeting, referring to “prices data slightly higher than expected.”
That was repeated in the subsequent formal minutes. And then in a speech last week, Stevens explained the Cup Day decision to leave rates unchanged with: “in addition, the latest inflation data, while not a major problem, were a bit on the high side.”
Simplistically this might suggest that Stevens would now want to see the next quarter’s inflation data before opting for a cut. That would postpone things to the first meeting back for the new year – in February.
A series of points counter that. First, the inflation genie didn’t even stick its head out of the bottle, far less leap out – it was only a “bit on the high side.”
Stevens needed to separate another cut from the inflation data, but only needed an immediate separation. A rate cut decision would go straight back to being ‘live’ at the next meeting.
That’s on the absolutely critical assumption that the RBA believed a further cut or cuts was likely to be necessary or even just appropriate.
And that was said precisely in the minutes: “Members considered that further easing may be appropriate in the period ahead.”
As Terry McCrann explained two bits of data would be critical. The jobs and jobless numbers and the wage inflation data. The jobs data was softish without being dreadful. It didn’t demand a rate cut, but it certainly ‘encouraged’ one. Provided wage increases were not threatening.
The subsequent wages data was lowish enough to allow the RBA to cut if it wanted to. But not that low, without being threatening, to make a cut a certainty.
Add it all together, a cut next week – rather than leaving a four-month gap from the last cut in October to the next meeting in February – is the ‘no regrets’ option.
Source: Terry McCrann Herald Sun