Thursday, May 5, 2016

RBA's Glenn Stevens to retire - master of understatement and odd market moving joke

Glenn Stevens is perhaps best known for his softly spoken manner in a business where understatement can sometimes be the name of a high stakes guessing game.

The outgoing RBA governor's carefully constructed sentences are more often than not punctuated by elongated pauses where silence and thinking time underscores the power of almost every every word.

Aware that his utterances can move markets, Mr Stevens is not surprisingly conservative in his communications.

At times though he has ventured away from his world where the sound of economic jargon resonates at RBA headquarters in Sydney's Martin Place.

But Mr Stevens has occasionally sidestepped the comfort zone of jargon with unexepected straight talk that has taken central bank observers and this reporter by surprise given that we spend so much time deciphering for the general public.

Late last year, Mr Stevens famously told market players to "chill out" as he attempted to derail constant suggestions that the Reserve Bank was poised to cut interest rates as it did on Tuesday.

In February, Mr Stevens was asked for his analysis on global market volaltiity after a series of steep falls in China looked like heralding a wider meltdown.

The governor's explanation to a parliamentary economics committee that financial markets were "dropping their bundle" made news because of the unusual bluntness and the lack of any economic reasoning.

Listen to my report from February 2016

But bluntness doesn't always work.

Mr Steven's attempt at dry humour (or calculated jawboning) backfired in July 2013 when Mr Stevens wryly noted that the RBA board had deliberated for "a very long time" before leaving the cash rate on hold.

Wire services did not detect a possibly raised eyebrow or nod and a wink and as a result the market interpreted the comment as a sign that rates went very close to being cut.

The dollar plunged below 91 US cents which in hindsight could be interpreted as stroke of accidential brilliance given the damage the high dollar was doing to the economy at the time.

So while Glenn Stevens' legacy will be framed around his handling on the global financial crisis in the wake of the 2008 Lehman Brothers collapse, he will be remembered for shaking up communications policy at the ultra conservative central bank.

Just over a year into his appointment as RBA governor, Mr Stevens announced "new arrangements" for the communication of the closely watched and market moving decisions on interest rates.

Before December 2007, the Reserve Bank only issued a written explanation of its decision if rates were raised or lowered and there was no commentary if rates were left on hold.

The additional information on all decisions gave economists and reporters a greater insight into the machinations inside the RBA boardroom and the opportunity to compare subtle changes in words or phrases on the board's general thinking.

Listen to my report from December 2007

At the time, a few interest rate strategists quipped and almost complained that the extra information could put them out of business.

In what was seen at the time as an explosion of information, the RBA also announced it would publish the minutes of the monetary policy meeting two weeks after the decision bringing the RBA into line with other major central banks like the US Federal Reserve and the Bank of England.

The RBA also released its rates policy statement at 2.30pm AEST on the first Tuesday of the month (except January) rather than at 9.30am before the stock market opened.

Glenn Stevens also used his dry tones in 2010 to warn of the potential risks of a real estate bubble in Sydney and Melbourne, warning on breakfast television that investors should not expect prices to keep rising forever.

Mr Stevens surprised journalists by appearing on Channel Seven's Sunrise program describing himself as a "boring bloke" and warning regular people that investing in bricks and mortar was not a path to assured propserity.

Listen to my report from March 2010

With five months to go in the job, Mr Stevens is still dealing with concerns about rapidly rising real estate prices.

And by cutting rates to 1.75 percent on Tuesday he took a calculated risk that more investors will not be tempted to pile into low rate loans that will inevitably rise.

Glenn Stevens might be an unwitting communications supremo but as his days as RBA boss are numbered reporters like this central bank watcher will be queueing up to get his final word on where Australia and the world are heading.

Wednesday, May 4, 2016

AAA credit rating safe for now, but Moody's warns of vulnerabilities

A major ratings agency has cautiously re-affirmed Australia's AAA credit rating in the wake of the Budget.

But Moody's Investor Services has signaled that the rating could be vulnerable to any negative shocks from China or a major downturn in Australia's housing market.

While leaving Australia's rating at AAA with a stable outlook, Moody's has warned against any slowing in the pace of budget repair.

I spoke with Moody's senior vice president Marie Diron.

Big business to hold Government to tax cut promise, accepts lack of political appetite

Big business has signaled it will be ramping up its lobbying to ensure it receives a promised company tax cut within a decade.

While small and medium businesses turning over more than ten million dollars have won a tax cut to 27.5 percent from July 1, big business might have to wait as long as 2026 for tax relief.

Listen to my interview with BCA chief executive Jennifer Westacott

The Business Council of Australia, which represents the nation's top one hundred companies, is taking the news on the chin describing the Budget as "solid and responsible".

But chief executive Jennifer Westacott told AM big business will be keeping the government to its promise.

"We're obviously pressing very hard that it be delivered. People forget that large businesses are responsible for over 40 percent of economic output," Ms Westacott said.

"We would have liked to have been a shorter time frame but you've got to remember that what the government has put forward is probably the most comprehensive plan to reduce business taxes with everyone.

"But clearly it would be good if we brought it forward. There are risks the longer we take to make our total business tax system more competitive the more uncompetitive the economy is overall."

Ms Westacott described the Budget as "solid" and "responsible" while appearing to accept that tax cuts to big business or broader tax reform were unlikely in tight financial times.

"The government has got to do what it can do within the fiscal circumstances," Ms Westacott said.

"There isn't the political appetite so we have to get things that are pragmatic and actually doable.

"I think the Government has taken a very pragmatic approach to this and I think it will send the right signal."

But the Business Council expects the government or future governments to deliver broader tax reform over time.

"There is still a lot of work to be done on the structural spending reform and that just cannot happen overnight. That's got to be phased in over a decade really," Mr Westacott said.

 While Australia's AAA credit rating is looking safe after the Budget, Ms Westacott agrees with warnings from major ratings agencies for budget repair.

"How do we preserve our AAA credit rating? Firstly we don't spend money we don't have and secondly we get our economy growing faster."