The Reserve Bank's present cash rate is the stuff of good times. It reflects market interest rates the RBA regards as normal, in keeping with an economy that's growing at about its trend rate while inflation remains within the desired band. But that doesn't mean the governor won't be reaching for a lever tomorrow.
No, it won't be the interest rate lever, it's the other one – the jaw bone.
There's a fine line between the balanced and open commentary the RBA has been providing anyone who wants to hear and something a little more managed, designed to influence as well as inform. On one side of that line must be a certain frustration that the money market doesn't appear to listen, while on the other is Glenn Stevens' metaphorical jaw bone, designed to make the market think what the RBA wants it to think.
As long as the markets aren't causing mischief, the RBA doesn't much care if they ignore its forecasting talents. The bank has spelt out in single syllables its quietly confident view of our world, a view that the cash rate should be on hold for months to come but is likely to move up a bit when it does change sometime next year.
Nevertheless, a proportion of the money market has been betting against that view, still punting that there will be a rate cut this year thanks to north Atlantic wobbles. Until last week, that didn't matter, but it's possible the quicker pace of our economy and the promise of more to come could result in the RBA wanting market rates to be sending a clear message about eventually higher rates. That's what successful application of the jaw bone can sometimes do.
The RBA doesn't want to tighten monetary policy – there's no need to yet and banks' funding challenges could push up rates a bit anyway before year's end. But with the consumer picking up steam, the governor might not mind people thinking hard that he's thinking hard about it. Much better to use a few choice words to scare punters into keeping sober than having to smash the punch bowl with a blunt instrument.
Thus Glenn Steven's brief statement at 2.30pm east-coast time tomorrow should be mainly good news, but with the kicker that the board is ready to act if the party shows any signs of becoming rowdy.
The RBA will be meeting without the benefit of knowing what Thursday's ABS labour force figures will show for August. If unemployment is pushing back down towards 5 per cent, the central bankers would like us to know the other lever is nearby. The board will have the benefit of “industry liaison” telling them consumers are back spending.
And while he's at the warning stage, the governor might like to return to an old favourite of his – the undesirable undersupply of housing. There have been more pressing issues lately, but the spring residential real estate hype could do with at least a token shot across the bows.
With Canberra in limbo and the governments of our two most populous states, Victoria and New South Wales, moving into election and Armageddon modes respectively, housing affordability has fallen off the radar. It was one of those important things the federal election largely ignored, while the state governments know that the thing politically worse than prices rising is the chance of prices falling.
The RBA governor doesn't have those political restraints. Present debt levels are serviceable, but housing is undesirably expensive and it would not be healthy for it to continue to outpace inflation. C'mon, Guv, give all three levels of government a swing of the bone to remind them of their incompetence in managing supply.
A little note at the end of your statement could do it if you keep it very simple for the dummies. Something like: “And you better do whatever you can to get more housing built or I'll whack you hard enough to make you wish you weren't in government.” That'd get their attention.
Michael Pascoe is a BusinessDay contributing editor
11 comments
More comments
Comments are now closed