“So you think the Reserve Bank board lacks ticker, Jim? You think the focus on getting inflation down quickly needs to be sharpened? You want more independence? Well cop this.”
The Reserve Bank board didn’t actually say that to Treasurer Jim Chalmers while increasing interest rates again on Tuesday afternoon, but it may have been between the lines.
And Governor Philip Lowe in a speech on Tuesday night did not say: “Now that I’ve had a while to think about it and get some backlash, er, I mean, feedback from the board, Jim, your bloody review and your effusive welcoming of all its dubious recommendations sucks.”
He didn’t phrase it that way, but that sentiment was more than between the lines as the governor rose to the defence of his board after rather meekly wearing the implied criticism in the Treasurer’s review two weeks ago.
Meeting mystery
Of all the RBA board meetings for which it would have been interesting to be the proverbial insect on the wall, this one would have been right up there.
Failing that – and in the interests of the review’s recommendation for greater communication – it also would be interesting to see the bank’s recommendations that went to this board meeting.
The official statement after the meeting was hairy chested about fighting inflation first. In plain English, the board said inflation has turned the corner but it’s not coming down fast enough and not enough people are unemployed, so have another rate rise and we’ll be happy to serve up some more of the same.
The review recommended keeping the 2-3 per cent inflation target but wanted the softening “on average, over time” bit dropped. It looks to me like it has just been dropped.
Per capita recession on its way
Thus, the RBA is seeking to lock in a per capita recession for two years to get inflation down as quickly as it can, never mind that lifting interest rates has stuff-all impact on energy prices and actually makes rent inflation worse.
That’s two years of average Australian households’ living standards going backwards.
If you have any complaints about that, take it up with Chalmers, J. The RBA is only allowed to play with interest rates.
What was not in the post-meeting statement or the governor’s dinner speech was fingering responsibility for the other two arms of macro-economic management: Fiscal and population policies.
They are the government’s and will be the focus on next Tuesday’s budget night theatre.
What also was not mentioned was the US Federal Reserve Board meeting taking place now and expected to deliver its own final 25-point interest rate rise on our Friday morning.
The Fed still sets the pace for central banks. The RBA doesn’t like to be isolated for long and thus it might have wanted to keep up with the Fed’s game.
Note that our dollar jumped back up towards 67 cents on Tuesday. The RBA would not have liked it falling if it was seen to be out of step.
Review fightback
But back to the governor’s belated fightback over the review’s implied and explicit criticism of boards past and present. I can only speculate that board members might have had an opinion and that perhaps Dr Lowe has given up his hope of having his term as governor renewed.
He began meekly enough: “There has been a lot of coverage of the areas where we can do better and this is understandable and appropriate.”
But then came the “but”: “But I want to draw your attention to some other findings that have received less coverage.
“Our flexible inflation-targeting framework has served the country well and the overall economic outcomes in Australia have been at least as good as those elsewhere.”
(Translation: Our “on average over time” targeting has delivered a better result over three decades than any other central bank.)
“The panel also concluded that the RBA is held in high regard internationally and that its staff are highly dedicated and skilled.”
(Translation: Stick that in your pipe and smoke, disgruntled former employees who didn’t quite make it in Martin Place.)
Medium-term focus
“We are a strong institution that is served by a dedicated, diverse and highly experienced board whose members have to grapple with very difficult issues. We have a strong focus on doing what is right for the country as a whole over the medium term, even if it is difficult for some people in the short term. Today’s decision by the board is an example of that.”
(Translation: See my opening paragraph.)
Speaking specifically about the two board members finishing their terms, but meaning the board in general:
“In my view, their contributions over these years reinforce the argument for the monetary policy board continuing to have strong, experienced and independent members drawn from a wide variety of backgrounds.”
(Translation: Stuff your concentration of supposed non-RBA monetary experts, if you can find any. Monetary policy is too important to be left to economists.)
Growth forecast confusion
And of the hints for what will be in Friday’s statement on monetary policy, the post-meeting statement downgraded the bank’s forecast for economic growth this year from 1.5 per cent three months ago to 1.25 per cent while upping its forecast for the 2024-25 financial year (so far away, they don’t really have the faintest clue) from 1.75 per cent to 2 per cent.
So the economy is weakening even faster while the full impact of the interest rate rises won’t be felt until late this year and early next year.
No wonder the Commonwealth Bank is forecasting interest rate cuts later this year.
As for inflation, while increasing interest rates on Tuesday, the RBA was thinking it will be down to 4.5 per cent by the end of the year.
Given the way the inflation counting works and if the RBA’s liaison and tea leaf reading of the present is good enough to justify the latest hike, let’s speculate that the June quarter CPI will print at about the same as the March quarter’s 1.4 per cent – 2.8 per cent in round terms for the first half of this year.
Which means the RBA expects the second half to be 1.7 per cent – which obviously annualises to 3.4 per cent and falling.
Yet the governor’s statement guessed it would still take another 18 months to get down to 3 per cent, the top of the target range.
Something there doesn’t quite add up. Maybe a raised middle finger got in the way.
