THE DISTILLERY: Rating the RBA

The commentariat wonders what might bring down interest rates in December, as one scribe relays boardroom concerns about a tougher tax office.

As Green Moon secured another Melbourne Cup for Crown Casino founder Lloyd Williams in Melbourne, those hoping for an interest rate reduction from Reserve Bank governor Glenn Stevens weren't so lucky.
 
With the cash rate already at historically low levels given Australia’s current unemployment rate, the RBA has to tread carefully with some important domestic economic data and major global events taking place. This morning, Australia’s business commentators look back and forward for an explanation of why Stevens didn’t move on Cup day.
 
We start with Fairfax’s economics correspondent Peter Martin, who has the presence of mind to look back to the central bank’s previous boss for some perspective on how rate movements might occur from already low levels.
 
"By keeping the official cash rate on hold at 3.25 per cent, the central bank went out of its way to describe interest rates for borrowers as 'clearly' below their medium-term averages. The bank subscribes to a notion made popular by its previous governor Ian Macfarlane that the further rates move from neutral the stronger the case that needs to be made to move them further away still.”
 
The Australian’s economics editor David Uren makes the point that the Reserve Bank isn’t saying it is content with Australia’s growth rate by keeping rates on hold.
 
"The fact that the bank has now cut rates by 1.5 percentage points, in five moves over the past year, bringing rates for borrowers to a level RBA governor Glenn Stevens describes as ‘clearly below their medium-term averages’, shows it believes the economy needs monetary stimulus.”
 
The Herald Sun’s Terry McCrann argues that Stevens might have reduced rates yesterday if he hadn’t moved last month.
 
"The commentariat broadly missed the October cut, because it collectively assumed that RBA governor Glenn Stevens and RBA management would want to see the CPI numbers first. That missed two critical points. The RBA believed the economy needed some further stimulus. And both its assessment of current conditions and its projections through 2013, were that inflation was not threatening. In simple terms there was no point in waiting to see the CPI data. So we got the October cut.”
 
The Australian Financial Review’s David Bassanese similarly argues that yesterday’s decision isn’t surprising if you look back at October.
 
"The RBA still retains a bias to ease rates, and its statement clearly signalled a rate cut next month remains under serious consideration. But given interest rates are already below average and the RBA would ideally like to keep some ammunition in reserve – should global events turn a lot worse next year – there simply wasn’t the imperative to cut interest rates for the second month in a row.”
 
The Australian Financial Review’s economics editor Alan Mitchell says another cut in December is possible, pointing to some all-important international issues that the RBA has to keep its eye on.

"The decision will be driven by the data and events in the US, Europe and China. In the meantime, the RBA clearly is happy to see the evidence of moderate growth in the US and stabilising growth in China, as well as the signs that past rate cuts are starting to have an effect on demand for business credit, housing and equities. The bank is looking for growth in housing construction to help offset the decline in mining investment towards the end of next year. Treasury is forecasting a sharp rebound in housing construction – probably of more than 11 per cent growth – over the next 12 months, which would contribute more than half a percentage point to the economy’s annual growth rate.”
 
Business Spectator’s Stephen Bartholomeusz also looks overseas for insights into the central bank’s thinking.
 
"After this week’s G-20 meeting in Mexico the finance ministers and central bank governors said downside risks to the global economy remained elevated, partly because of possible delays in implementing policies to stabilise the eurozone, the implications of the 'fiscal cliff' in the US, securing the funding for Japan’s budget, weaker growth in some emerging economies and the potential for more supply shocks in commodity prices. Since the last board meeting, however, there have been stronger signs that the US housing market and the economy more broadly is turning up while the slowdown in China that developed as this year progressed appears to have bottomed in response to relatively modest stimulatory measures by the authorities.”
 
The Australian’s John Durie offers up the domestic economic indicators that will drop between now and the next central bank meeting.
 
"The October employment numbers will be released this week and, while the numbers are notoriously difficult to predict, Westpac economist Bill Evans says it is clear the labour market is soft. The next inflation numbers are not due until January 23, so the employment numbers combined with any dramatic moves offshore will determine if there is indeed a rate cut next month.”
 
Had the Reserve Bank cut rates yesterday, The Distillery might have featured Fairfax’s Adele Horin as the top story this morning.
 
"In the next week or so the boardrooms of corporate Australia will be hit between the eyes with draft legislation designed to beef up the ATO's core arsenal – its anti-avoidance law – after suffering some big courtroom defeats that cost it more than $1 billion in lost revenue. The draft legislation, which is designed to amend Part IVA of the Tax Act, will be tough, retrospective and controversial, and it will be released as the ATO searches for a new boss after last month's shock announcement that Michael D'Ascenzo would leave at the end of the year. D'Ascenzo's replacement is expected to be announced within weeks, with speculation running hot that the government will break with tradition and make an external appointment.”
 
In mining, The Australian Financial Review’s Matthew Stevens focuses on Nathan Tinkler, specifically the entrepreneur's relationship with one of the key figures within Whitehaven’s marketing business, Ross Crump.
 
The Australian Financial Review’s Chanticleer columnist Tony Boyd makes the astute observation that "nobody understands the risks of doing business in Asia better than Lynas Corporation executive chairman Nick Curtis”.
 
The company’s latest frustration is just the latest episode in long saga, as it attempts to secure the go-ahead for its rare earths project in Malaysia.
 
And Fairfax’s Michael Bachelard explains how some mid-tier Australian miners are running into trouble in Indonesia with protests starting to get out of hand.
 
Elsewhere, Fairfax’s Ross Gittins continues his examination of the Asian Century white paper, observing that Australia’s farmers are becoming a more central focus of China’s demand for commodities.
 
And finally, The Australian’s Bryan Frith weighs in on the Standard & Poor’s decision.

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