# Reserve Bank leaks like a sieve



## banco (30 April 2015)

They seem to be in the habit of leaking stuff to Fairfax these days:

Concern about a deteriorating economic outlook and a resurgent Australian dollar will force the Reserve Bank to cut interest rates on Tuesday, taking the official cash rate to an all-time low of 2 per cent and discounted mortgage rates to just 4.55 per cent.

The Australian dollar touched US80 ¢ on Thursday, a level the Reserve Bank governor Glenn Stevens has previously said was well above its fundamental value.

http://www.canberratimes.com.au/bus...-in-face-of-weak-economy-20150430-1mwyeu.html


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## qldfrog (1 May 2015)

Indeed, the only question is :
are these leaks "purposely" released?
A leak in itself is as efficient as an actual move..at least a couple of time until people come to see it as a bluff
I see a cut as well in the coming weeks but without actual government action against inflating the current bubbles, it is a dangerous move;
I also doubt the actual efficiency in term of economic boost but it is nevertheless needed if only to control the AUD .


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## banco (1 May 2015)

qldfrog said:


> Indeed, the only question is :
> are these leaks "purposely" released?
> A leak in itself is as efficient as an actual move..at least a couple of time until people come to see it as a bluff
> I see a cut as well in the coming weeks but without actual government action against inflating the current bubbles, it is a dangerous move;
> I also doubt the actual efficiency in term of economic boost but it is nevertheless needed if only to control the AUD .




I dont' think the story would be as definitive about the rate cut if it wasn't an authorised leak.  Curious that as soon as the bank shares start looking shaky they leak this.


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## waterbottle (3 May 2015)

qldfrog said:


> Indeed, the only question is :
> are these leaks "purposely" released?
> A leak in itself is as efficient as an actual move..at least a couple of time until people come to see it as a bluff
> I see a cut as well in the coming weeks but without actual government action against inflating the current bubbles, it is a dangerous move;
> I also doubt the actual efficiency in term of economic boost but it is nevertheless needed if only to control the AUD .




The interesting thing is that the government is taking steps towards curbing the bubble and it is now becoming a mainstream concept (when compared to 2008-2012).
Vic is planning on increased taxes for foreign buyers.
The feds are planning on gaoling them/fining those who assist with illegal purchases.
The harm of negative gearing is being publicly discussed by citizens, social welfare organizations and parliament.

IMO there has been a definite change in thinking. Time will tell if this will be put into action.
My thoughts are that if a cut occurs in May/June, then the RBA is expecting the government to follow through on these thought bubbles.


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## Tyler Durden (4 May 2015)

I think it'll be on hold tomorrow.


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## banco (4 May 2015)

Tyler Durden said:


> I think it'll be on hold tomorrow.




The story in the paper was basically an official leak so I'd say chances of it staying on hold are negligible.


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## Wysiwyg (5 May 2015)

banco said:


> They seem to be in the habit of leaking stuff to Fairfax these days:



At work they call it ringfencing where information is kept in house. Share buying blackouts is another control the company applies to employees.


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## Uncle Festivus (5 May 2015)

The RBA board is going down the same idiot path as all the other central banks, a path to mutually assured destruction of the financial kind. So the other 45% of the population who save and spend will simply contract again and keep saving but not spend! The rest who live beyond their means in debt won't be enticed to borrow any more 'at the margin' of low rates. Throw out all the text books about finance and economics because there's only 2 solutions to everything now - ZIRP and QE. 

Not far away from having to pay to have deposits in a bank, and limit the use of cash!

Disgusting.


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## banco (5 May 2015)

Uncle Festivus said:


> The RBA board is going down the same idiot path as all the other central banks, a path to mutually assured destruction of the financial kind. So the other 45% of the population who save and spend will simply contract again and keep saving but not spend! The rest who live beyond their means in debt won't be enticed to borrow any more 'at the margin' of low rates. Throw out all the text books about finance and economics because there's only 2 solutions to everything now - ZIRP and QE.
> 
> Not far away from having to pay to have deposits in a bank, and limit the use of cash!
> 
> Disgusting.




I suspect when the property market eventually blows up the RBA will say they told APRA to do something about restricting loans so it's their fault.


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## Tyler Durden (5 May 2015)

Tyler Durden said:


> I think it'll be on hold tomorrow.




Ok I got it wrong. I didn't think the RBA would have the balls to do that.

Interesting reaction on the ASX, which initially went up but then took a bit of a dive.


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## banco (5 May 2015)

Tyler Durden said:


> Ok I got it wrong. I didn't think the RBA would have the balls to do that.
> 
> Interesting reaction on the ASX, which initially went up but then took a bit of a dive.




Presumably it was already baked into the price due to the leak.


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## Tyler Durden (5 May 2015)

banco said:


> Presumably it was already baked into the price due to the leak.




That would make sense, but then it should've stayed evenly level after the announcement?


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## skyQuake (5 May 2015)

Tyler Durden said:


> That would make sense, but then it should've stayed evenly level after the announcement?




It wasn't baked in properly.

After the announcement, SPI rallied 50pts, AUDUSD fell 0.60c
This was the algos reacting to the rate cut.

Then actual people read the whole damn thing. Basically it hinted at an end to the rate cut cycle, ie no more cuts, potential rate rises down the track.
Thus SPI got belted, AUDUSD rallied. Note how bonds got hit and reacted faster than SPI


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## banco (5 May 2015)

I'd still like to know the rationale behind leaking it.  I've read that they don't formally decide until the Tuesday.  I wonder if the RBA is trying to force some board members to vote they way they want? "well it's already being leaked so we can't not cut"


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## Klogg (5 May 2015)

Uncle Festivus said:


> The RBA board is going down the same idiot path as all the other central banks, a path to mutually assured destruction of the financial kind. So the other 45% of the population who save and spend will simply contract again and keep saving but not spend! The rest who live beyond their means in debt won't be enticed to borrow any more 'at the margin' of low rates. Throw out all the text books about finance and economics because there's only 2 solutions to everything now - ZIRP and QE.
> 
> Not far away from having to pay to have deposits in a bank, and limit the use of cash!
> 
> Disgusting.




Have a read of this:
http://bwater.com/uploads/filemanag...hine_works__leveragings_and_deleveragings.pdf

If you read the section entitled "1934-1938 International Devaluations Follow the Dollar Devaluation", you'll notice it's happened before (currency wars to promote economic growth). The solution was to use QE to inflate the money supply, so that credit could once again grow (if you believe Dalio's ideas). Australia is not quite at this point (maximum 200 basis points to go), but many other countries are.

Remember, the RBA is here "to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people". If that means dropping rates because most people are leveraged up, then so be it. 
(Note, I just sold my house, so I'm not part of 'most people')


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## Tyler Durden (5 May 2015)

skyQuake said:


> It wasn't baked in properly.
> 
> After the announcement, SPI rallied 50pts, AUDUSD fell 0.60c
> This was the algos reacting to the rate cut.
> ...




Interesting.

What does this mean: "The Federal Reserve is expected to start increasing its policy rate later this year"

What is policy rate? Same as interest rate?


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## Uncle Festivus (5 May 2015)

Tyler Durden said:


> Interesting.
> 
> What does this mean: "The Federal Reserve is expected to start increasing its policy rate later this year"
> 
> What is policy rate? Same as interest rate?




Yes, but the key words are 'is expected' - going on recent data they shouldn't but then again they are just glorified economists who continually get it wrong so they probably will raise?


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## Smurf1976 (5 May 2015)

Uncle Festivus said:


> The RBA board is going down the same idiot path as all the other central banks, a path to mutually assured destruction of the financial kind.




Regardless of the longer term outcome, they're basically out of bullets now.

I mean seriously, we're down to 2% so there's not a lot further to fall. Not at zero yet, but we're close enough.


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## McLovin (5 May 2015)

skyQuake said:


> It wasn't baked in properly.
> 
> After the announcement, SPI rallied 50pts, AUDUSD fell 0.60c
> This was the algos reacting to the rate cut.
> ...




A conclusion which surprises me. Last paragraph...



> At today's meeting, the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.




It doesn't seem like bottom of the cycle stuff.


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## rimtas (5 May 2015)

Smurf1976 said:


> I mean seriously, we're down to 2% so there's not a lot further to fall.




It still has 8 cuts untill it reaches 0.  
Current 2% is way too high if compared to the US and EZ. 

I just wonder when they throwover the idea of budget surplus and start QE instead, but one way or another we get there.


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## skc (6 May 2015)

McLovin said:


> A conclusion which surprises me. Last paragraph...
> 
> It doesn't seem like bottom of the cycle stuff.




I concur. I think the market is over reacting and is trading like we will have a rate rise next meeting. 

Glenn Stephens might clarify things a bit in his next speech somewhere... seeing the $AUD soar is definitely not the intent of the RBA. And even if they don't have a easing bias, they should at least pretend to have one to keep the $AUD down.

Look at the rate hike talk in US... it's like getting a loan back from a bum. He said he will pay you back next week, but then next week came and he had to pay rent. He said he will pay you back next month, then next month came and his car had a flat tyre... it keeps being push back while Yellen maintains lip service to a hike. Meanwhile, the US market is still hugging all time highs.


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## banco (6 May 2015)

rimtas said:


> It still has 8 cuts untill it reaches 0.
> Current 2% is way too high if compared to the US and EZ.
> 
> I just wonder when they throwover the idea of budget surplus and start QE instead, but one way or another we get there.




Isn't Australia more constrained than the US and EZ given our different situations? ie Australia's reliance on overseas money?


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## McLovin (6 May 2015)

skc said:


> Look at the rate hike talk in US... it's like getting a loan back from a bum. He said he will pay you back next week, but then next week came and he had to pay rent. He said he will pay you back next month, then next month came and his car had a flat tyre... it keeps being push back while Yellen maintains lip service to a hike. Meanwhile, the US market is still hugging all time highs.




We're in the twilight zone I think. 

Could you have imagined this 10 years ago?



> Mexico sold the world’s first 100-year government notes in euros and its third so-called century bond as the nation seeks to lock in lower borrowing costs amid the European Central Bank’s unprecedented stimulus.
> 
> The country offered 1.5 billion euros ($1.62 billion) of debt due in March 2115 with a 4.2 percent yield to maturity, according to a statement from the Finance Ministry. Yields on Mexico’s 30-year euro bonds sold in February have fallen 0.32 percentage points since the debt started trading to 2.77 percent as of 3:22 p.m. in New York.




Err...Mexico! 100 years! 4.2%!

Debt defaults...



> Mexico (1827, 1833, 1844, 1850,[18] 1866, 1898, 1914, 1928-1930s, 1982)




It's basically Greece with tacos.

Strange times.


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## skc (6 May 2015)

McLovin said:


> We're in the twilight zone I think.
> 
> Could you have imagined this 10 years ago?
> 
> ...




Lol. I wish I could lock in a 100 year bond for negative 0.5% interest. Any takers?

Definitely very strange times. Well, apparently the Islam considers charging any interest for loan as sinful and an act of usury. We must be all heading that direction...

May be that's the evolution of modern finance... the concept of risk free rate is now changed forever. Risk free rate should be zero. No risk, no return. Simple as that. I can't believe we didn't think of it 200 years ago. Think about how many ghost cities on Mars we could have built with all those free money.


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## DeepState (6 May 2015)

skc said:


> Any takers?



Banco Centrale de SKC


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## skc (6 May 2015)

skc said:


> I concur. I think the market is over reacting and is trading like we will have a rate rise next meeting.
> 
> Glenn Stephens might clarify things a bit in his next speech somewhere... seeing the $AUD soar is definitely not the intent of the RBA. And even if they don't have a easing bias, they should at least pretend to have one to keep the $AUD down.




Ok... found this article discussing the last paragraph of the RBA meeting statements.
http://www.sharecafe.com.au/sharecafe.asp?a=AV&ai=34572

Here's the one in April... no cut.


> "At today's meeting the Board judged that it was appropriate to hold interest rates steady for the time being. *Further easing of policy may be appropriate *over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.”




Here's the one yesterday for May... 25bps cut.


> At today’s meeting, the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.




Here's the one in Feb... 25bps cut. http://www.rba.gov.au/media-releases/2015/mr-15-01.html


> At today's meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.




To me the Feb and May statements don't read that differently. The "further easing may be appropriate" line is only used in the month when the rate is held steady. The RBA is always about assessing the available data and making a decision... that's why they meet monthly to make a decision. They don't make a decision on 2 rate cuts in one meeting. 

So.... I think the market got it wrong. Let's see.


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## banco (6 May 2015)

skc said:


> To me the Feb and May statements don't read that differently. The "further easing may be appropriate" line is only used in the month when the rate is held steady. The RBA is always about assessing the available data and making a decision... that's why they meet monthly to make a decision. They don't make a decision on 2 rate cuts in one meeting.
> 
> So.... I think the market got it wrong. Let's see.




I agree the language itself isn't different but the context is (ie we are now at lowest rates ever).


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## McLovin (6 May 2015)

skc said:


> Ok... found this article discussing the last paragraph of the RBA meeting statements.
> http://www.sharecafe.com.au/sharecafe.asp?a=AV&ai=34572




I don't know if these guys read a different announcement to me or its a case of following the herd and explaining the market reaction rather than explaining the announcement.

This...



> The economy is therefore likely to be operating with a degree of spare capacity for some time yet. Inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate."




And this...



> At today’s meeting, the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand




= Rate cuts are over. 



skc said:


> To me the Feb and May statements don't read that differently. The "further easing may be appropriate" line is only used in the month when the rate is held steady. The RBA is always about assessing the available data and making a decision... that's why they meet monthly to make a decision. They don't make a decision on 2 rate cuts in one meeting.
> 
> So.... I think the market got it wrong. Let's see.




I'm glad to see I'm not the only one.


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## sptrawler (6 May 2015)

rimtas said:


> It still has 8 cuts untill it reaches 0.
> Current 2% is way too high if compared to the US and EZ.
> 
> I just wonder when they throwover the idea of budget surplus and start QE instead, but one way or another we get there.




Well if that happens, the last thing you would want to do, is bail out of the share market.


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## DeepState (6 May 2015)

The FX moves and bond moves were likely driven by global matters much more so than the RBA decision.  The RBA announcement likely had very little influence on CAD which has been moving in lock-step with AUD. Further, I doubt it moved UK, GER yields up sharply as well with all major market yields up that day.

This is a major carry unwind going on.  Something has been happening since 14 April.


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## qldfrog (7 May 2015)

DeepState said:


> The FX moves and bond moves were likely driven by global matters much more so than the RBA decision.  The RBA announcement likely had very little influence on CAD which has been moving in lock-step with AUD. Further, I doubt it moved UK, GER yields up sharply as well with all major market yields up that day.
> 
> This is a major carry unwind going on.  Something has been happening since 14 April.



So is it the time to load in USD, or even Euro??
The AUD is back to 80c (in USd) and this is the telltale sign for me to buy O/S currencies
I concur with you, the fact that the interest rate is the lowest ever has no real significance as there is still much room to go: 2 points more-> at least 8 easings on rates and i would bet the last ones would be by smaller de-crements.
I do not agree/validate the policy but  better go with the flow.So how can I use it
Just edgy with the stockmarket, especially in Oz


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