From Terry McCrann:
AFTER 18 months of keeping its official interest rate unchanged, the Reserve Bank will almost certainly cut the rate at its first meeting back for the year next Tuesday.
What is absolutely certain is that the key language in RBA governor Glenn Stevens’s post-meeting statement will change. That would obviously be the case if he’s announcing a 25-point cut, but it would change to “signalling a future cut” even in the now unlikely case the rate was left unchanged.
…Now of course the last official word from Stevens, after the last RBA meeting in December, was still that the “period of stability” looked best. So what’s changed and why is the RBA going straight to a rate cut, if I’m right, instead of first “signalling”?
Perhaps the best short answer is provided by the words Stevens used after the meeting which preceded the meeting, in August 2013, at which the rate was last cut, taking it to 2.5 per cent.
After the July 2013 meeting Stevens had said “the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand”.
Broadly, that is exactly again the situation which now prevails.
It is rumoured that our Terry used to be one of the “chosen ones” that were tipped off in advance of the meeting. Since Chris Joye blew that allegedly comfy relationship up some years ago that’s all been less certain but this looks more or less right to me.
Overnight index swaps were at 12% yesterday, 50% today. Chirs Joye himself describes the effect at the AFR:
So what drove this radical repricing in the global investment community’s best guess of the possibility of the RBA pulling its monetary policy trigger? The words of one media commentator.
Feb cut is coming home with a wet sail.
