Terry McCrann: No need to race to rate hike on Cup Day

A lot can happen between now and Melbourne Cup Day, but as it stands there’s little reason for another RBA rate hike.

Let me be very clear. Two options will be formally on the table at the Reserve Bank’s pivotal Cup Day meeting – to leave its official rate unchanged and to hike by 25 points.

This will continue the analytical and discussion process initiated by the previous governor Philip Lowe earlier this year. And, critically, continued by new governor Michele Bullock at her first meeting earlier this month.

This ‘two option’ process operated at all of the last four meetings – all of which left the rate unchanged; and even more importantly, always were going to leave the rate unchanged.

So, yes, once again, Bullock will present the board with detailed arguments for both a rate hike and a rate pause. But, as I explained yesterday, the pause is all-but certain.

Nothing Bullock had to say at Senate estimates Thursday altered this.

Three points.

Of course, she was never going to announce the RBA’s Cup Day decision. Even via ‘hint, hint’.

There’s a lot of water to flow under the bridge over the next two weeks. Both analytical and what could actually happen in the world.

Second, it’s actually not hers to announce anyway.

Yes, which of the two options she recommends the board adopt, will be powerful.

But at the end of the day – and especially this coming Cup Day, coming up for noon – there will be eight votes and Bullock will be only one of them.

This leads to the third point, which has seemingly escaped the entire economentariat – business economists and media commentators alike. And which in turn has three elements.

Bullock won’t, or is at least unlikely, to have ‘her Bullock’ – a deputy to support her and vote with her.

Secondly, treasury secretary Stephen Kennedy, who sits on the board, has all-but announced he will be voting for a pause.

Bullock has made it clear she will have to be convinced that there has been a “material”

deterioration in the inflation outlook to force a rate hike.

After the CPI numbers surfaced, Treasurer Jim Chalmers stated that Treasury had told him they did not represent a “material” change; that Treasury still forecast inflation would return to target by mid-2025.

That’s Bullock’s line in the sand – which, was also Lowe’s line in the sand.

Which, incidentally, is the ludicrous stupidity of the hysterical reaction to the numbers.

Just because the quarterly number came in at 1.2 per cent instead of 1 per cent, suddenly inflation two years into the future was going to blow almost out of control.

Let me explain to the massed economentariat, which seems universally, let me say, ‘mathematically challenged’.

Yes, inflation was 1.2 per cent in the September quarter. Driven by one-off left-field factors.

But over the September half it was 4 per cent annualised. Not a number that, to put it mildly,

demands an emergency rate hike.

Then, the third element – the other six voting board members. And which include two new,

Chalmers-Labor appointments who do not look like rate hawks to me.

Bottom line. There is no need for an emergency rate hike. There won’t be one.

Originally published as Terry McCrann: No need to race to rate hike on Cup Day