RESERVE Bank Governor Glenn Stevens made an inspired choice last August when he attached the adjective ''emergency'' to the cash rate, which has been at 3 per cent since April after being cut by 4.25 percentage points in seven months.
The word attached itself to market discussions like a limpet, softening up the markets for a round of rate rises that may well begin today. If the central bank does move, it will be breaking a supposed convention because it has never boosted rates ahead of an official peak in unemployment, but Stevens is a serial convention buster.
He decided in December 2007 that the Reserve would issue a statement explaining its motives after each monthly meeting of the board, and publish minutes two weeks later; and since those changes the markets have had a better understanding of the bank's thinking.
After its last rate cut in April, for example, the Reserve issued three monthly statements in a row that referred to it having scope to cut rates further if needed. Signs of economic recovery were appearing by the time it met on August 4, and the reference to having room to cut rates was dropped. The Reserve left rates unchanged for the fifth consecutive month on September 1 but referred more directly to inflationary pressures that have not been allayed by any data since then.
The convention that federal elections create a ''no go'' zone for interest rate adjustments was also smashed by Stevens, in 2007.
That federal election year began with him warning that no central bank could accept the notion that ''a rate change is off limits for one year out of three'', and in August the Reserve did lift its cash rate by a quarter of a percentage point, to 6.5 per cent.
Two weeks later, Stevens told a House of Representatives Committee that if a rate rise was justified during an actual election campaign, ''I don't know what explanation we could offer the Australian public for not doing it''. The Reserve made history during the campaign on November 8, when it increased its cash rate to 6.75 per cent.
Then in July this year, Stevens dispatched the convention that the Reserve would not begin to raise rates until unemployment had officially peaked.
Asked about it by Macquarie interest rate strategist Rory Robertson, Stevens said he had ''never seen written down nor have I ever heard in discussion in the institution some rule of thumb that says we wait until unemployment's peaked before we lift the cash rate''.
It depended, he said, on ''what else is happening and also depends on how low you went'', adding that during the global financial crisis, the Reserve had taken the cash rate very low indeed. His comment the following month that rates were at ''emergency levels'' further primed the markets, and last week Stevens told the Senate Economics Committee that it remained to be seen whether rates were taken up before unemployment stopped rising: ''I think it is fairly apparent, is it not, that unemployment is not going to reach the sorts of peak levels that all of us feared only a few months ago''.
Unemployment was steady at 5.8 per cent in August, after a fall in jobs was offset by a decline in the participation rate, and the Reserve will not see official data for September until Thursday, when the Australian Bureau of Statistics workforce report for September is issued.
At today's rate-setting meeting a surprisingly large rise in US jobless numbers will argue for a one-month delay before the rate rises begin; and, if the board waits a month, it will also see the September-quarter inflation result.
But signs that Australia's economic emergency is over are continuing to emerge, and ANZ said yesterday that newspaper and online job advertisements rose 4.4 per cent in September after rising 4.1 per cent in August, the fastest pace since December 2007, albeit one that still leaves job advertisements 44.9 per cent lower than a year ago.
Employment has not fallen as much as expected because companies cut hours worked rather than jobs. One flip side is that growth in new jobs will be slower in the recovery as companies respond initially to higher demand by extending hours worked. But the Reserve likes to keep ahead of the expectations curve. A quarter of a percentage-point rise today would do that, and the markets would take it in their stride: as Stevens told the Senate committee last week, a rate rise really should be welcomed, as evidence that Australia's economic emergency is over.
MYER says it has bounded over the first hurdle for its $2 billion-plus float. Applications from brokers for firm allotments on behalf of retail clients were strong enough to cover the entire share sale, according to people working on the deal. That actually does not suit Myer: its ideal mix will be about 50 per cent to 60 per cent retail shareholders and 40 per cent to 50 per cent institutions, and it is the institutions which will set the price of the offer, by bidding for stock at prices between the indicative range of $3.90 a share and $4.90 a share at the end of this month.
Broker firm applications have accordingly been scaled back to about 40 per cent of the offer. Price is still an issue: the institutions do not want to pay $4.90 a share for promised top-line revenue growth. But the broker firm response gets Myer off to a flying start.
