Last night, 5 days before the May RBA board meeting, a story appeared on the main Fairfax websites, indicating the RBA would cut interest rates.
Something about this story was unusual.
Written by respected economics journalist Peter Martin, it makes some very bold claims without any sourcing. For example:
“Concern about a deteriorating economic outlook and a resurgent Australian dollar will force the Reserve Bank to cut interest rates on Tuesday, taking the official cash rate to an all-time low of 2 per cent and discounted mortgage rates to just 4.55 per cent.”
How could he know? Normally, such a story obsesses on the implied chance of a rate cut, quotes experts and goes out of its way to show where all the ideas in it come from. Take this Peter Martin story from January for example.
“Inflation is simply not a concern, the Bank’s decision in February need pay no heed to the consequences for prices,” said BT Financial Group economist Chris Caton…
But futures traders marked wound back their bets on a February interest rate cut, cutting the implied probability from 84 per cent to 66 per cent. “The underlying inflation figure came in just above the market’s expectations,’’ explained NAB currency strategist Emma Lawson. “That allowed some pricing of the expected cut to be taken out of the market.””
This new story lacks a single quote, but it isn’t marked as an opinion piece either.
The second pertinent feature of the story was its timing. Five days before the next RBA meeting. Before the last rate cut, in January, there was another curiously insightful story published, by top NewsCorp business journalist Terry McCrann predicting a rate cut. That one also came out five days prior to the meeting.
It is hard to avoid the conclusion the RBA is briefing key journalists on what it will do next.
Two key questions occur to me.
1. This is a big new deviation in the RBA’s communications strategy, which until now had relied on officials making public speeches. Speeches have the advantage of being clearly attributable. If definitive information is being given out, why not give it out in a transparent way?
2. If the RBA can brief journalists on what it will do five days in advance of the board meeting, what exactly is the board meeting for?
The RBA board is stacked with high-flying people chosen for their ability to contribute to the making of monetary policy.
As well as the RBA Governor Glenn Stevens and his 2IC Philip Lowe, the board table has
- John Akehurst, director of CSL
- Roger Corbett, chairman of Fairfax
- John Edwards, director of the Committee for the Economic Development of Australia
- Kathryn Fagg, director of Boral
- Heather Ridout, chair of the Australian Super Trustees Board
- Catherine Tanna, managing director of Energy Australia.
- John Fraser, Treasury Secretary
Are these great loci of business and economic acumen merely a rubber stamp for the calculations of the RBA?
I suppose it’s obvious that the RBA drives the meeting – it has the staff working on the question of rate cuts month in and month out. They provide the chair, set the agenda, and doubtless distribute packages of graphs to all present.
But now I wonder if the board meeting is really a discussion at all, or whether the gathered brains chew sandwiches while the RBA shows a power point presentation, concluding by presenting the next movement of the official cash rate as a fait accompli.
If that’s the case, ought we have a board and a board meeting at all?