ANZ backflips after RBA confirms 'joke'

We’re sorry, this feature is currently unavailable. We’re working to restore it. Please try again later.

Advertisement

This was published 10 years ago

ANZ backflips after RBA confirms 'joke'

By Glenda Kwek and Gareth Hutchens

The Reserve Bank's deputy governor Philip Lowe has confirmed that governor Glenn Stevens was making a "light-hearted remark" when he quipped yesterday that the board had deliberated for a very long time on its interest rates decision.

Mr Stevens' comments sent the Australian dollar into a tailspin and prompted ANZ economists to revise their interest rate predictions, saying an August cut was now on the cards.

Jittery investors read the runes in a throwaway line.

Jittery investors read the runes in a throwaway line.

But Mr Lowe said today at a conference that financial markets and the media "misinterpreted" his comments and they were just a response to a "very light-hearted introduction" to his speech in Brisbane.

"Well I can confirm for you that the board deliberate for a very long time. I can also confirm for you that it always deliberates for a very long time," Mr Lowe said to laughter from the audience at the Global Financial Stability and Prosperity conference in Sydney today.

"We start our meetings at 9am and the monetary policy discussion normally finishes about quarter to one and that's exactly what happened."

Mr Lowe added that the governor's remarks were at the beginning of his Brisbane speech.

"They were meant to be a light-hearted remark after what, he reports to me, was a very light-hearted introduction. I think some people in the financial markets and perhaps the press misinterpreted the intention of those remarks," Mr Lowe said.

In a sign of the confusion Mr Stevens' remarks caused, ANZ economists changed their interest rate forecast after the speech, tipping a rate cut in August, and another one in November.

Advertisement

However, ANZ said in a note this afternoon that it was reverting to its previous forecast after Mr Lowe's clarifying remarks. The bank's economists now expect the next RBA rate cut to take place in November.

"[L]ogic dictates that we should revert to our prior assessment, which was that the falling [Australian dollar] was now playing an important role in easing financial conditions, allowing the RBA to sit pat on the interest rate front for some time," ANZ said.

"Our view included the expectation that the RBA would eventually come around to the view that further interest rate accommodation would be required by the economy, in spite of the weaker [Australian dollar]."

The economists expect downward pressure on the cash rate to continue even after November, as mining investment weakens and the economy transits towards non-mining growth more slowly than is expected.

Rate cut chances trimmed

As a result of Mr Lowe's remarks, swap rates trimmed the chance of an easing next month back to 47 per cent, from 55 per cent earlier.

They were meant to be a light-hearted remark after what, he reports to me, was a very light-hearted introduction.

The Australian dollar was trading at 91.15 US cents this afternoon, having recovered from its drop to a 34-month low of 90.37 US cents yesterday in the wake of Mr Stevens' jest. It was also trading slightly higher against other currencies this morning, trading at 59.6 British pence, 90.93 Japanese yen and 69.9 euro cents.

The dollar has fallen more than 13 per cent against these currencies since mid-April.

NAB economists said this morning they were not yet revising their cash rate forecasts after Mr Stevens' quip.

"After all, if the RBA deliberated and decided against a rate cut yesterday, presumably something will need to chance between now and August for them to act next month," they said in a morning note.

Financial services provider TD Securities said they were lowering their cash rate forecast to 2.5 per cent by the end of the year, as Mr Stevens' full speech was unusual in that it did not take the normal "glass half full" approach.

"Secondly, the RBA board’s insistence that the [Australian dollar] remains high despite the 10 big figure correction in recent months speaks to us that the bank is determined to assist the currency lower in any means possible," TD Securities' Asia-Pacific Research head Annette Beacher said.

Overseas reactions

Mr Stevens' comments on the long rate decision "deliberations" also got bit of traction overseas, given the attention the Australian dollar has received from international investors over the past few years.

The Financial Times' Sydney correspondent quipped in a short piece: "Central bankers can do many things but they should never, ever attempt humour".

"You can see why people weren’t rolling around in the aisles. In fact there was downright confusion after Stevens delivered the ‘gag’ in his usual deadpan style," Neil Hume wrote about the so-called joke.

"Still he who laughs last, laughs longest. The RBA has been attempting to talk down the dollar for months without, it has to be said, much impact. So perhaps humour is the way to go after all."

Stay tuned for RBA deputy governor Phil Lowe's speech on "Some Tensions in Financial Regulation" later today. It may sound dry, but the markets will be watching.

Mr Stevens' "deliberated for a very long time" comments also sparked a flurry of comments on Twitter:

Most Viewed in Business

Loading