Having created market expectations that it would raise rates, the Reserve Bank board delivered, demonstrating its incompetence, reports Michael Pascoe.
Thank you, RBA monetary policy board, for making me and my comfortable peers richer, boosting my unearned income so I can continue to splash the cash around.
How much richer? The Pascoe family super fund, like many others, holds some bank hybrids. My favourite is paying an annualised pre-tax yield north of 8.8%. How good is capitalism? If you’re a comfortable capitalist, that is.
OK, that particular hybrid – Macquarie CAP NOTE 3-BBSW+4.15% – is likely to be redeemed next year, but in the meantime, let the champagne flow. There are other hybrids in the portfolio, such as one from NAB that has a few years to run and has a pre-tax trading yield of “only” about 7.2%. Tough, but being in a super fund, there’s precious little tax paid on that.
And every time the RBA looks like increasing interest rates, up goes the BBSW (bank bill swap rate) in anticipation. Put me down for another 25 points on those fat yields in November, thanks, Governor. If the AFR cheer squad gets its way, a canny super fund hybrid portfolio after tax will be paying about double the inflation rate with minimal risk over the next year.
A blunt tool
Bank hybrids have a limited lifespan as the relevant financial regulator is wiping them out, but by the time the last are redeemed, the cycle will have turned, the monetary hawks will have the recession they’re demanding, and there will be other games for those with the cash to play, picking up cheaper equities.
In the meantime, they serve as a prime example of how
the RBA’s blunt instrument takes two steps back for every three forward.
Yes, it’s the third or so of Australian households with a mortgage that cop the nail that sticks out of the bank’s blunt instrument for fighting inflation. And of that third, the cohort who have substantially paid down their mortgage over the years aren’t in the front line.
The quarter of us with no debt at all just get richer. Indeed, Governor Bullock said at today’s media conference that one of the ways monetary policy works is by encouraging saving rather than investing. Which is great if you have the money to save. Besides, I suspect she meant to say “spending” rather than “investing”.
So if the RBA’s only available tool is so clumsy, so blunt, delivers so much collateral damage and can’t actually target the key causes of inflation, you’d think the bank would do the best it possibly could when bringing it smashing down.
Bad timing!
But it doesn’t. Today’s decision displays simple managerial incompetence by scheduling the board meeting on the two days before the bank’s key metric, its mandated target, the CPI, is updated.
The decision was made primarily on the basis of inflation figures that are two months old – and a lot has happened in those two months, including a surprise upwards move in unemployment and the shadow banking world of private credit flirting with disaster. The day after the board’s meeting, the Australian Bureau of Statistics releases its latest monthly CPI, a measure that is nonetheless one month old.
How hard would it be for a competent board to schedule meetings the day after the most important figures they get hold of? Harder than this lot could manage.
Governor Bullock said “unfortunately” the CPI was being released tomorrow. Challenged if it was incompetent scheduling rather than “unfortunate”, she said the board dates were set 18 months to two years in advance, and board members were all busy people sitting on other boards, etc etc and the financial markets wouldn’t like the RBA changing meeting dates.
Which is no excuse. The ABS has been releasing its monthly CPI number – both the official one now and the indicator before it – on the last Wednesday of the month for four years. The bureau will change to the fourth Wednesday of the month from February, sparing the RBA another embarrassment at the September meeting next year.
Former fund manager Mike Mangan didn’t hold back in his private email ahead of the meeting, saying the scheduling SNAFU “is all you need to understand about the institutionalised dunderheads at the RBA”.
“The RBA shares the same institutional blind spot as legacy media,” he wrote. “Both are fantastic at telling you what just happened. Both are only marginally helpful, and often completely useless in anticipating what WILL happen.
“There is a fundamental reason for this blind spot. Both rely intimately on historic data to formulate their worldview. They drive their respective cars by mostly looking in the rearview mirror. They’re institutionally crippled when looking forward…
Whoever scheduled an RBA meet the day before the next cpi data release ought be fired – for negligence.
Well, that’s not going to happen.
CPI announcement to come
So as I write this on Tuesday evening, the board runs the risk of looking competent if the CPI lands as expected at 11.30 on Wednesday morning or looking incompetent if inflation comes in lower. It’s a silly risk to take.
That’s especially the case when one RBA board member last week destroyed the myth of Australia facing an inflationary wages spiral, demonstrating that wages are not driving inflation, that, institutionally, it would be very hard indeed for wages here to “break out” despite what all the whinging usual suspects trot out in the financial press.
Indeed, the board member in question, Iain Ross, took a clear swipe at the AFR and Oz without naming them:
“The ‘threat’ of rising wages has been a persistent theme in the financial press since inflation began rising sharply from mid-2021. A number of media commentators have raised the risk of a wage-price spiral – pointing to the 1970s when the oil price shock collided with large pay rises flowing through the economy.”
And then in 3300 words and seven graphs he demonstrated they were hopelessly wrong, mugs even.
Asked if she agreed with Ross, Governor Bullock did, saying, “There is no wage price spiral going on in Australia.
Rises in wages are not driving these unit cost pressures.
I’d rate Ross’ the best speech yet by any of the part-time monetary policy board members is of whom is required to give one speech a year.
Funny thing, I couldn’t find any mention of it in the AFR or the SMAge, though there was plenty of absolute economic drivel in both.
In case I had accidentally missed the coverage, I asked AI if it was in the Fin. Gemini replied:
“The Australian Financial Review (AFR) did not lead the immediate coverage of Iain Ross’s speech, as his remarks were a direct rebuttal to the very narrative the publication has championed.”
“While major news outlets like The Australian and the ABC quickly published detailed breakdowns of his September 22, 2026 address, the AFR’s coverage has traditionally focused on corporate warnings about wage inflation.”
Even a bot can read the policy wind.
Michael Pascoe is an independent journalist and commentator with five decades of experience here and abroad in print, broadcast and online journalism. His book, The Summertime of Our Dreams, is published by Ultimo Press.