Omicron will impact RBA rate decision

Reserve Bank of Australia governor Philip Lowe. Picture: Jane Dempster/The Australian

When Glenn Stevens became Governor of the Reserve Bank in 2006, he immediately set about raising interest rates. Is history about to repeat itself?

That’s to say, as he now becomes chairman of ‘the fifth major’ Macquarie Group, is his successor as RBA Governor, Philip Lowe, about to start raising interest rates?

Let me hasten to add, Lowe certainly won’t be ’starting’ at next Tuesday’s RBA meeting.

But fast-forward to the next meeting, at the start of February, and the question becomes far more febrile, Omicron permitting.

Stevens became governor in September 2006; within two months, at the RBA’s Melbourne Cup Day meeting, he lifted the official rate to 6.25 per cent.

He would lift it again most famously – or in the eyes of a certain former Prime Minister, in-famously – on Melbourne Cup Day 2007.

Glenn Stevens, former governor of the Reserve Bank of Australia. Picture: Adam Yip

That just happened to be smack in the middle of an election campaign, in which ‘John Howard lite’ – as we would discover, really ‘extra-lite’ – Kevin Rudd, beat the real thing.

And maybe cost us ever getting Peter Costello as PM.

Within a year after that, Stevens – and all the rest of us - would be in the middle of the Global Financial Crisis; and the rest would be, a long long bit of, still unfolding history.

So, we have two questions. When does Lowe start hiking and does something like another GFC also lie in our future?

The hiking all depends on the virus. If Omicron does prove a storm in a teacup, the hiking will come and it will come earlier than the RBA predicted back on this Melbourne Cup Day.

The second part, I suggest, has been ‘locked in’ by the Fed’s promiscuously irresponsible and spineless zero rates and money printing for over a decade.

It’ll either come because the Fed finally gets responsible and hikes through Wall St temper tantrums; or, more likely, it buckles to the tantrum, only postponing the reckoning but making it more cataclysmic, when we finally run out of road to kick the can down.

Stevens is the first ex-governor to become chairman of a major financial institution.

The closest we’ve got before is his predecessor Ian Macfarlane becoming a director of the ANZ Bank.

But then we’ve only had six other ex-governors; and at least two of them, his predecessor Bernie Fraser, and the first one, ‘Nugget’ Coombes, would never have gone within cooee of a (wicked) big bank boardroom.

Is it appropriate?

My answer is an unequivocal yes. The idea that an ex-governor has some sort of ‘inside access’ to the mysterious workings of the RBA is both ludicrous and offensive. The RBA these days is transparent, light years away from even the early years of this century.

Indeed, it was Stevens himself who started the process of letting in the light, and Lowe has taken that considerable steps further.

I am certainly much more comfortable with an ex-governor sitting on a – in itself, very transparent and accountable – public company board, than what Janet Yellen did after leaving the Fed. In two years she picked up more than $10m in fees in speeches to Wall St insiders – often at $300k or more a pop, with even the lowest around $60k.

Just for speeches. Not that she could have really told them anything worth it. That, to me, was actually ‘the problem’. Finally, apropos of nothing really, except I’m a sucker for coincidences, the name of the horse that won the Cup in 2006, the day of Stevens’s first rate rise, was ‘Delta Blues’

Do you think that turned out to be just a teeny bit prophetic? And the Cup winner on the day of his mid-election rate rise?

Efficient. It certainly proved very efficient at helping turf one John Howard.