Analysis: Don’t Confuse RBA Transparency with More Dovishness

• Published on
• 19 Nov 2019, 12:00 AM

By Sophia Rodrigues

The minutes of the Reserve Bank of Australia’s appears more dovish that many expected but the reason is not because the RBA is more dovish but because it is more transparent.

In the minutes of the November board meeting, published Tuesday, the RBA said, “The Board agreed that a case could be made to ease monetary policy at this meeting..”

That line shows that the RBA considered rate cut at the meeting, and is widely taken as the RBA being dovish.

However, that may not be the case. The RBA is simply being more transparent.

This is the second month the RBA has published detailed account of the final discussions that led to the outcome of the meeting.

The detailed account shows there was a case for rate cut at both October and November meetings. And in both the meetings, the RBA board discussed the merit of a rate cut.

In October, the decision was to lower the cash rate by 25 basis points to a record low 0.75%. And in  November, the final outcome was to leave the cash rate on hold at 0.75%.

Just because the RBA has clearly stated there was a case for rate cut at November meeting doesn’t mean another rate cut is imminent or it is more dovish than widely believed.

If the RBA had to rewrite the minutes of August board meeting, it is possible it would have said something like “a case could be made to ease monetary policy at this meeting.” Indeed, it might have said the same thing in the minutes of the September board meeting.

But until September, the RBA never gave a detailed account of what outcomes were considered. All it has said in the minutes until then was something to the effect, “Taking into account all the available information.”

Readers were left guessing whether any decision was a straight-forward one, or there was debate between hike/cut and hold.

CRITICISM AT PARLIAMENTARY TESTIMONY

The increased transparency might be the result of the criticism the RBA faced at the Parliamentary testimony in August when MP Andrew Leigh asked Governor Philip Lowe if he agrees that the RBA is possibly one of the least transparent central banks in the world.

“The Reserve Bank, unlike most other central banks around the world, doesn't publish transcripts of meetings, doesn't publish the voting record of members, doesn't hold regular press conferences after announcements and doesn't attribute views to board members in the minutes,” Leigh said.

Lowe didn’t accept the suggestion that the RBA is not transparent at all. He said there is nothing to be gained from attributing individual views because the board takes its decision by consensus after discussions.

It is likely that Lowe has takes some of the feedback on board and has decided to be more transparent about the discussions at the meeting that leads to the final outcome.

COMMUNICATION STRATEGY

It is also possible that increased transparency is part of Lowe’s evolving communication strategy. By giving an account of what was considered, the RBA is able to clearly set out the trade-offs it is facing.

Lowe made a mention of this in a speech in October when he said, “When we make decisions, there is always an element of judgement and we have to wrestle with difficult trade-offs, where reasonable people can come to different judgements.”

“This means you should expect us to explain our decisions clearly. You should also expect us to explain the various trade-offs we face and how we are balancing them. And as these trade-offs become more complicated in today's world of very low interest rates, you should expect us to be as clear as we can be about how we are viewing these trade-offs and how they are affecting our decisions.”

It is widely believed the RBA governor has a lot of input into the shape of the final minutes. This is not to suggest that the minutes is not a true account of the meeting, but it is likely that Lowe would have played an important role in drafting the detailed account of final discussions seen in the last two minutes.

--Contact: sophia@centralbankintel.com