The Distillery: Rates revisionism

Put aside the political nonsense about the inherent goodness or badness of interest rate cuts for a moment. Two commentators have taken another look at the Reserve Bank’s latest utterances on the economy for their weekend readers and the results are more than somewhat optimistic.

Meanwhile, the resignation of Kim Williams as chief executive of News Limited, the publisher of this website, has been given a thorough going over, with one commentator delivering a particularly insightful theory for his departure.

But first, Fairfax’s Tim Colebatch writes that the Reserve Bank's “baseline case” is for the economy to deliver unconvincing growth in the near-term, but growth nonetheless.

“It has slashed its growth forecast this year from 2.75 to 2.25 per cent, continuing the slow pace of growth in the six months to March. With the population assumed to grow by 1.8 per cent a year, the real bottom line, GDP per head, is expected to grow by roughly 0.5 per cent, or just a third of its long-term average. But the Reserve has left its forecasts for next year unchanged at between 2.25 and 3.25 per cent, the wide range of possible outcomes reflecting its uncertainty. By the end of next year its best guess is that GDP growth will be back to its trend rate of 3 per cent, and it thinks could rise to 3.5 per cent by the end of 2015.”

The Australian’s economics editor David Uren looks further afield to see that, in the longer run, the Reserve Bank is entertaining more bullish scenarios than in the recent past. This means that rates mightn’t have to drop any further.

“This scenario is painted with greater clarity in the Reserve Bank’s monetary policy statement than the RBA has done before. The upper band on the bank’s December 2015 forecast range is now 4.25 per cent, which is the best growth the bank has been prepared to contemplate in two years (when it expected the economy would hit 4.5 per cent in 2011-12). While most of the market focus on the Reserve Bank’s statement was on the downgrading of its near-term growth outlook, with growth through to this December marked down to 2.25 per cent and unemployment projected to rise through next year, the upside perspective is important for understanding the trajectory of monetary policy. If events evolve in line with the Reserve Bank’s forecasts, it may not see the need for further rate cuts, even with the expected rise in unemployment.”

The big corporate news story to get attention in the weekend reads was the resignation of News Limited chief executive Kim Williams.

Here’s Business Spectator’s Stephen Bartholomeusz.

“The departure of Williams wasn’t completely unexpected. There had been rumblings from within News to suggest growing resistance to the sweeping changes Williams had made and was continuing to make to the organisation. It’s also the case that the demerger of the “new” News Corp from the US 21st Century Fox businesses was always going to create greater visibility for its largely print-based businesses and greater pressure for financial performance in a period where dramatic accelerating structural change in the industry was being overlaid in this economy with a deep cyclical trough. For both News and Fairfax that has been adding additional stresses to already-stressed businesses.”

Fairfax’s Malcolm Maiden similarly reports that word was emerging from within News of friction between the ambitious Williams and the editors.

“He came as an external change agent, with a brief to meet the challenge from digital media. The changes he wrought extended beyond the Cons Media acquisition to a restructuring of News itself, but he made enemies in the process. Editorial production and commercial processes including advertising sales were unified under a ‘‘one city, one newsroom’’ mantra, and editorial numbers were rationalised. External management consultants were engaged. In another business, it would have been unexceptional, but in the tribal world of newspapers where structural and cyclical pressure on revenue and profits is extreme and changes take time to flow to the bottom line there was push-back from key lieutenants, including editors.”

But Fairfax’s Adele Ferguson has an alternative explanation, that News director and Ten Network chairman Lachlan Murdoch had been under the impression that Foxtel would side with Ten in a bid for the NRL rights, rather than sticking with Nine.

“It was high stakes. The ratings at Ten had been slipping and the NRL broadcasting rights had been seen as the network’s panacea to stop the ratings rot. When it became official that Ten had been left in the NRL wilderness and that Williams had backed Nine, Murdoch felt he had been kicked in the guts. One source said Williams is always the smartest man in the room but he overestimated the strength of his relationship with Murdoch. ‘He obviously believed Lachlan would get over the NRL. It was a complete misjudgement,’ he said. His fate was sealed. From then on it became death by a thousand cuts.”

In other news, The Australian Financial Review’s economics editor Alan Mitchell was watching the televised debate last night and found that if there was a winner from the encounter, “it certainly wasn’t the economy”.

Also in politics, Fairfax’s Ross Gittins uses his formidable command of economics to deflate the impression the banks are trying to present that a levy on deposits will simply be passed on to consumers.

The Herald Sun’s Terry McCrann sat down for an interview with BHP Billiton chief executive Andrew Mazkenzie. The new mining boss emphasised that his chief focus is value for shareholders, not volume for customers.

And finally, The Australian’s John Durie has noted the fighting words from competition tsar Rod Sims in a speech on Friday in regards to court cases brought against big corporates.

“We are not attached to our win/loss ratio and we won’t back way from big companies for fear of losing.”