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Go easy on the RBA’s “easing bias”

Go easy on the RBA’s “easing bias”

When is a flat outlook an easing bias?

When there’s a cheer squad wanting the Reserve Bank to do something, almost anything, and especially when within that cheer squad there’s a group wanting an interest rate cut.

Also read: RBA confidence about economy grows

The governor’s brief statement from the final RBA board meeting of the year is a little different in some aspects but the core of it boils down to be much the same as the last six:

  • The signals about the economic outlook are mixed;

  • Growth is moderate, a bit below what it could and should be;

  • There are some positive signs that maybe local non-mining business investment just might be about to turn the corner;

  • Inflation isn’t a worry;

  • Rates are already very low and providing the stimulus that low rates can provide;

  • If necessary, the RBA is ready to do whatever it can to assist growth if the economy weakens further;

  • There’s certainly no rate rise on the horizon

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So, it’s the same old same old – but that’s translated by most commentary into the RBA having “an easing bias”.

I take that phrase as meaning the RBA is leaning towards cutting rates again. I think that’s wrong – the RBA is leaning towards keeping rates steady.

Governor Stevens said as much last week during Q & A after delivering a speech to business economists. As reported by Fairfax’s Peter Martin: 

Mr Stevens was asked why it was that the Bank hadn't cut rates again even though the economy was growing more slowly than it could and inflation was low. Was it because the Bank believed the economy was picking up, or was it because a further cut from already low levels would hurt the incomes of retirees who lived off interest.

Also read: RBA downplays bank hikes, next move down

"You are making the case for us to sit still," he replied. "It is an idea I happen to agree with.

"The question I ask is: how do you make growth better?

"It may be you can make it better by lowering rates, it may be that you can make it better most effectively by articulating a case for stability, playing to the positive things that are happening, not smashing the savers over the head further, if the relative effect of that stimulating is not as great as it used to be."

That, plus today’s brief statement, say very clearly to me that the RBA has a steady bias.

I’ve tried a number of times (without success) to add a new bird to the usual aviary for describing policy.

Everyone knows about monetary hawks wanting to increase rates and monetary doves wanting to lower them, but I think there also are monetary penguins, Emperor penguins to be precise, standing still over their eggs through the Antarctic winter.

I reckon Glenn Stevens would really like the idea of being an Emperor penguin – except that he’s keen pilot and penguins don’t fly.

The people pushing the “easing bias” line most tend to be economists who keep forecasting a rate cut. It’s a way of saying their earlier forecasts of cuts that didn’t happen weren’t entirely wrong because the RBA remains inclined to do so.

Also read: RBA Stevens chills out on rates until Feb

And, who knows, the RBA might yet trim rates again next year if the fledgling signs of greater business borrowing don’t grow wings. But that’s in the realm of forecasting – and the main thrust of Stevens’ speech is that forecasting is a mug’s game.

The main headline out of the speech though was that everyone should just “chill out” about rate cuts and have a good Christmas. That’s what the RBA will try to do with its next meeting, in February, set to have a whole bunch of fresh data for it to make a decision about – whether to a dove or penguin be.