The Distillery: Cut copy

The Reserve Bank of Australia’s decision to keep rates on hold yesterday was less newsworthy than usual given it’s an election week, but its decision to omit one crucial sentence over ‘easing bias’ got tongues wagging and saw the keyboards of business scribes go into overdrive. While one commentator is still anticipating two more downward tweaks by March, rate cuts could indeed be over, though the decision largely rests on QE developments in the US. Over to you, Mr Bernanke.

The Herald Sun’s Terry McCrann says Reserve Bank governor Glenn Stevens has accelerated, in McCrann’s words, “the easing of the easing bias.” And it could disappear altogether by the time of its next board meeting.

“Were the (US) Fed to start 'tapering' at its next meeting on September 17-18, that would all-but eliminate any chance of another RBA rate cut this year. Even including at the Cup Day meeting, which has proved a special favourite for Stevens-era rate changes - with changes on the first six of 'his' seven Cup Days… What is clear, though, is that there is no prospect of a RBA rate hike on this coming Cup Day, or indeed at any monthly meeting anytime soon. The choice facing the RBA at the next few meetings at least, is a further rate cut - probably, not cuts, plurals; or leaving the rate unchanged. Its institutionally informed preference is to not cut again.”

The Australian Financial Review’s David Bassanese is less convinced about the reduction to the easing bias, arguing there’s still strong cause to expect a rate cut before 2013 is done – and another early next year.

“Assuming business confidence remains subdued and the unemployment rate edges a bit higher in coming months, there’s still a good chance the RBA will cut interest rates again by year end. That will also require the Australian dollar to not collapse badly, and the September quarter consumer price index report due later next month to confirm continued benign price pressures. Indeed, my call of a cash rate of 2 per cent by March 2014 remains in place.”

Business Spectator’s Stephen Bartholomeusz weighs the challenges confronting Stevens in the coming months. With so many local and international forces at play, it’s not easy pulling the rates lever.

“Certainly, on the evidence to date, the RBA rate cuts aren’t having much impact… The only discernible positive effect – but one that the RBA won’t necessarily want to be too positive – is that house prices are starting to take off… It would be tempted to cut rates again to try to shake the dollar loose from its level of around US 90 cents, but would be fearful of really igniting a housing boom and potentially a bubble. That’s why, despite saying that it would continue to assess the outlook for the Australian economy and adjust policy as needed to foster sustainable growth in demand, the RBA will be hoping to adjust official rates up (rather than down) in the not-too-distant future. For that to happen, we need some recovery in non-resource sector growth. To get that, we probably need a lower dollar. A central banker’s lot is never easy or uncomplicated.”

The AFR’s Philip Baker also puts the spotlight on the dollar, suggesting that while the RBA’s easing bias may be fading, it may need to cut again if it wants the dollar to fall to its desired level.

“The Reserve Bank is still hopeful the Australian dollar can fall further, which is great news for all the hedge funds and other speculators that have chalked up a record level of shorts on the currency. But judging by yesterday’s price action, the bank is going to have to cut rates again if they want the dollar lower... The bounce from US89.84 cents a few minutes prior to the decision, to as high as US90.48 cents soon after, was notable given that everyone expected the bank to leave the cash rate unchanged. The Australian dollar really shouldn’t have moved that much at all.”

Shifting to M&A activity, and an IOOF bid for The Trust Company has thrown the cat amongst the pigeons after Perpetual seemed the frontrunner for control of Trust – provided it could get the ACCC onside. The Australian’s John Durie explains why the move would be a match made in heaven for IOOF, while Fairfax’s Malcolm Maiden discusses how IOOF is edging into the box seat through a sweeter offer and diminished regulatory risk.

The Australian’s Richard Gluyas, meanwhile, peers into developments in the petrol retail space and contends the rapid growth of a Dutch group could hinder ACCC plans to play spoiler on Woolworths’ and Coles’ petrol discount offers.

And finally, Fairfax’s Elizabeth Knight outlines the latest on the collapse of Nathan Tinkler’s once vast empire. This time the bankruptcy of Aston Metals has the mining magnate in the news for the wrong reasons.