The Distillery: RBA punchline

Reserve Bank governor Glenn Stevens is a rather measured public figure and the reaction to yesterday’s speech in Brisbane perhaps reveals a little of the reasoning behind it. The guy makes a joke about how long the bank’s board thought about cutting rates on Tuesday and the market goes bananas. You’re never allowed to have fun as the RBA boss.

This morning, Australia’s business commentators do a good job concealing their laughter when analysing the reaction to Stevens’ joke, while also paying serious attention to the speech he gave. There were actually some pretty serious messages in there.

But first, Fairfax’s Malcolm Maiden reports that somehow Stevens’ dry joke at the economists’ lunch conference in the Sunshine State somehow turned into a serious flash from Bloomberg that the Reserve Bank had indeed deliberated for a long time on Tuesday over whether to cut rates.

“The Australian dollar slumped by almost three quarters of a US cent within minutes to fresh 3-year lows of about US 91 cents, and fell further as word filtered out that Stevens had not intended to give everyone a steer about future cash rate decisions. Late in the afternoon it was trading at about US 90.6 cents, 1 cent down. The comment by Stevens that moved the market followed a couple of other opening lines that got laughs.”

The Australian Financial Review’s economics editor Alan Mitchell reports how the Reserve Bank isn’t content just to watch the falling Australian dollar lighten the load on monetary policy, but it is happy to watch the 2 percentage points that have been slashed from the cash rate continue to take effect.

“While there is a good chance that the RBA will have to cut interest rates more to fire up investment spending in the housing and non-mining business sector, there is also a risk that it already has cut rates too much.”

Yesterday wasn’t all about giggles with Stevens. The Australian Financial Review’s Chanticleer columnist Tony Boyd points out there was a serious message from the Reserve Bank governor for the boffins in Canberra.

“Stevens does not give gratuitous advice to politicians, which is why it was highly significant that he issued a reminder to both parties that the importance of the commitment to return to a federal budget surplus will be ‘heightened in the future’. The remark was made in the context of a generally upbeat speech on Wednesday about current economic conditions and prospects. It deserves a response from new treasurer Chris Bowen and shadow treasurer Joe Hockey. Both have yet to answer questions about how they plan to put Australia on a path to restoring federal government surpluses. Both have made promises or issued heavy hints that several revenue-generating policies will be dumped. But there is little clarity on how the revenue holes will be filled.”

The Australian’s economics editor David Uren points out that Bowen will be treasurer for no more than 16 weeks before the government goes into caretaker mode. That isn’t a lot of time to do much damage.

The Herald Sun’s Terry McCrann believes there were three key messages to take away from Stevens’ speech.

“First the ‘new normal’ was lower economic growth pretty much around the world, and even in high-growth Asia and most notably in China, compared with the pre-GFC levels. ‘Perhaps this has to be a conditioning factor when we think about our own growth aspirations and the way we seek to achieve them,’ he added. Secondly, we were going to emerge from the end of the resources boom this time in far better shape than from previous booms – with relatively low unemployment and inflation. It might have been different if the GFC had happened later. Our banks would have joined the party. We got lucky. That timing aside, mostly thanks to the flexible exchange rate. Thirdly, don’t ask from where tomorrow’s post-boom growth will come: it will. The lesson of the past 20 years is that only part of it will come from old established industries.”

Meanwhile, The Australian’s John Durie reports that the consumer watchdog is expected to release the next draft of the access undertaking suggestions for the national broadband network. The Australian Financial Review’s Jennifer Hewett writes that Chinese telco equipment giant Huawei is looking at further investments in Australia despite being excluded from the NBN construction.

In other company news, Fairfax’s Elizabeth Knight says Nine Entertainment’s purchase of television stations in Perth and Adelaide from Bruce Gordon’s WIN Television “has opened the media floodgates for corporate activity”.

And finally, Business Spectator’s Stephen Bartholomeusz writes that Aurizon is clearly committed to establishing a presence in the Pilbara, diversifying away from the New South Wales coal industry, by signing a binding “relationship agreement” with Brockman Australia.