The editor of Business Spectator, James Kirby, has penned a piece today arguing that the Governor of the RBA, Glenn Stevens, needs to shut up. It’s worth analysing the piece to see whether its argument makes sense:
The Brisbane summit was Stevens’ second speech in a week – he spoke in Adelaide on June 8. But the more he talks in public the less authority he has. And in case you think it’s perfectly conventional for a central banker to wander the land giving speeches on everything from productivity to the payments system, it is not. Last calendar year Stevens made 17 speeches, that’s more than double the seven speeches his predecessor Ian Macfarlane gave when he was in the same office a decade ago.
So Stevens has broken with convention. OK. But how about some context. Are circumstances the same as they were ten years ago? Wouldn’t one expect more speeches from the RBA chief in the wake on the GFC? In the wake of the greatest structural change in the Australian economy in thirty years? I would have thought so. Back to Kirby:
What is more, Stevens would appear to be well out of line with his international peers. Taking just two relevant examples: Mervyn King, governor at the Bank of England, presented a total of five speeches last year, the governor of the Reserve Bank of New Zealand Alan Bollard did six – so Stevens has done more than the two of them put together.
I might just as easily line up Ben Bernanke, who is currently going the other way with very regular media conferences. Or Canada’s Mark Carney, who is as prolific publicly as he reticent to actually move rates.
And that’s the point, eh? In a post GFC world, in which “open mouth operations” have become a key part of policy-making, you would expect a greater number of appearances. Back to Kirby:
Does it matter? Absolutely. The RBA governor is arguably the second most important post in the land after the prime minister. His public comments should underpin stability in the financial system: stability in turn translates into business confidence. Just now, according to a NAB survey, business confidence is at a three-year low.
So, we have a number of leaps of logic here that need to unpacked:
Point 1: Glenn Stevens is important, yes.
Point 2: He underpins stability in the financial system. Yes, but the question of how that is achieved is what matters and given Kirby doesn’t go into it, he’s really got no argument at all. I can’t help wondering if this isn’t a veiled response to Stevens’ recent speech that the RBA will not save housing, which makes you wonder where the argument actually emanated from.
Point 3: The NAB survey has tanked because, Kirby seems to be saying, the RBA hasn’t underpinned stability in the financial system? Well, that’s patent garbage, with rate cuts etc. pouring forth.
Bizarrely, Kirby then takes this absence of logic and proceeds with the following:
The truth is that the RBA is struggling to have its voice heard. The radical and successful decision by Mike Smith, chief executive at ANZ, to introduce an independent cycle of interest rate announcements has materially damaged our central bank’s ability to influence interest rate settings among commercial banks. Additionally, more commonplace issues such as rumours of divisions at board level, negative responses to unpredictable movements in cash rates or indeed the common sin of overestimating both growth and inflation, have an extra sting when the office of the governor shows any signs of losing relevance.
Errr, so Stevens is to blame for a fall in business confidence as he has cut rates 125bps in 6 months. But Mike Smith is a legend because he’s held back many of those cuts. Come again?
Moreover, many of the so-called rumours of division on the board have been spread by the bullhawkian commentators at Business Spectator as cover for their own dreadful forecasting.
Kirby’s last point is an important one. The RBA has been badly wrong in its forecasts. Which is one very good reason for why it needs to stand up now, in as many speeches as possible, to explain how it got it wrong and where we are headed now.
Which is exactly what it is doing.
