THE DISTILLERY: Dove chatter

Jotters offer a lesson in Reserve Bank language, with most noting further cuts are unlikely despite an easing bias.

If reading the subtle differences in the statements from the Reserve Bank of Australia is an art form – and some have described it that way – it’s by far the ugliest. The broad consensus from Australia’s business commentators is that the Reserve Bank won’t cut rates anytime soon unless there’s a significant deterioration in the local economy and, as one writer observes, its enduring ‘willingness’ to cut rates might be a bit of international bluff.

Fairfax’s Malcolm Maiden puts on a clinic in Reserve Bank language interpretation, recalling the far more worrying language when the central back was slashing 100 basis points at a time in the wake of the Lehman Brothers collapse. This time around the language is noticeably more encouraging.

"The key statements, unchanged since February, are that the Reserve thinks economic growth in this country will be slightly sub-par this year as the baton-pass from the resources sector to the rest of the economy occurs, that its 3 per cent cash rate is therefore ‘appropriate’, and that there is room to take it lower, because inflation is in the middle of its 2 per cent to 3 per cent target range, and perhaps headed towards the bottom of the range as job cuts by companies responding to subdued demand keep a lid on wage demands. A rate cut isn’t guaranteed. It will happen if it is ‘necessary to support demand’, the Reserve says, and so far this year, it hasn’t seen the necessity.”

The Australian’s economics editor, David Uren, writes that more rate cuts are unlikely this year unless the economy worsens noticeably.

The Herald Sun’s Terry McCrann, a veteran business journalist and rate cut savant of sorts, found something curious about yesterday’s statement. It’s that the final crucial paragraph – 126 words in total – is exactly the same as last month’s.

From what McCrann can recall, this is the first time this has ever happened. He believes this means two things – one big, one small.

"The big one is that ‘something’ will now have to change for the Reserve Bank to cut again – to turn what is still a bias to easing to an actual easing. The small one is that it is over to the big banks themselves whether they are prepared to cut – more accurately, trim – their general lending rates. And over to the ANZ Bank, in particular. With rather exquisite timing, this is a rare month when the ‘second Friday’ comes in the same week as the RBA meeting. The ANZ has set the ‘second Friday’ as the date at which it makes its rate decision. Most months, it has a week-and-a-half after the RBA meeting to consider its decision and to, in particular, see what the other three big banks have done.”

Business Spectator’s Stephen Bartholomeusz argues it’s surprising that the Reserve is so steadfast in its preparedness to cut rates, given that international conditions remain relatively stable – somewhat surprisingly so – and the Australian dataflow has been positive of late. Property is up, the sharemarket is booming. Why the concern?

"The only weapon in the Reserve Bank armoury that can be deployed in response to the currency wars, in which Australia is an innocent bystander largely powerless to protect itself, is to reduce – or threaten to reduce – the real rates of returns on offer from the domestic bond market. Hinting that there could be more rate cuts in future is one way to try to keep a lid on the currency and soften the effects it is having on the trade-exposed areas of the economy. Jaw-boning is a tactic often used effectively by central bankers to influence markets and an obvious one for the Reserve Bank to resort to given the lack of actual firepower available to it to resist the forces driving the dollar.”

While we’re talking economics, Fairfax’s Tim Colebatch says austerity measures by local governments are reducing economic growth. This might feel like a bit of ‘yeah, and, so what’ kind of point, but it’s an important backdrop when you consider the debate about why it is that our economy is just tugging along. It’s not just because of the ebbing mining construction boom and the high Australian dollar.

Speaking of cutbacks, Fairfax’s Ross Gittins delivers a stinging rebuke of the Gillard government’s attack on Opposition Leader Tony Abbott for his plans to roll back a series of tax concessions to lower-income families that Labor has installed, with particular reference to the all-important electoral region of western Sydney.

"There’s a key omission from Labor’s description of its wonderfully generous household assistance package: why it was necessary. Its purpose was to compensate low and middle-income families for the cost of the carbon tax. Since the Coalition promises to abolish the carbon tax, Abbott has said that all the compensation for the tax will also go. (Strictly speaking, the schoolkids’ bonus is linked to the mining tax, but the Coalition is also promising to abolish this tax, and Abbott has said the bonus, too, will go.) The trick is that Abbott has yet to give any details of how or when these concessions would go and what they’d be replaced with. But this hasn’t inhibited Labor. It has happily assumed what the Coalition intends and is presenting its assumptions as hard facts.”

The Australian Financial Review’s economics editor, Alan Mitchell, looks at the economic realities of Opposition Treasurer Joe Hockey's message to big business that Australia will remain a high wage economy. To have high wages, you need high productivity. Europe managed to do it, but high unemployment came with it.

The Australian’s John Durie encourages readers to look over the Business Council of Australia’s latest submission to the government on how to get out of our current fiscal mess.

Staying with policy for just a moment, The Australian Financial Review’s Chanticleer columnist Tony Boyd takes us though the penchant of the Treasury to tax high frequency trading.

In regards to the government’s intention to remove the 75 per cent 'reach' rule for Australian broadcasters, the news that has set television consolidation speculation in motion, The Australian’s Darren Davidson says history suggests that when media laws are changed, Aussie television companies act quickly.

In other economics news, The Australian’s Peter Alford makes the observation that Indonesia could surpass Thailand this year are the largest vehicle market in southeast Asia. The point is to highlight the potential for Australian components manufactures, so beholden to federal auto subsidies, to look up for the solution – a neighbour that’s just to our north.

Meanwhile, unofficial Gina Rinehart biographer, Fairfax’s Adele Ferguson, has touched base with the billionaire’s estranged son John, who has thrown support behind his sister Hope after settling with the matriarch following financial trouble.

The Australian’s Bryan Frith says Elders appears to be hitting some trouble in its efforts to offload its sandalwood assets to entities associated with Santanol, which owns and operates neighbouring sandalwood plantations.

And finally, The Australian Financial Review’s Matthew Stevens takes us inside the lobbying efforts of the big supermarkets to quietly build a case against competition boss Rod Sims that they have too much market power.


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