Make a note in your relatively new 2012 diaries for two o’clock, February 7.
It marks the first federal parliamentary sitting day of the year … and the first hour or so of question time could be explosive.
Given the events over the long summer recess, including independent Tasmanian Andrew Wilkie’s withdrawal of his support for the minority Labor government over pokies reform, there is every possibility Opposition Leader Tony Abbott will stump up a “no confidence” motion.
Assuming Prime Minister Julia Gillard survives to fight another day, after all the argy-bargy, Treasurer Wayne Swan will be hoping there is enough time left in question time for a Dorothy Dixer on interest rates.
Because on the same day as political warfare begins for another year, the Reserve Bank of Australia (RBA) will be holding its first monetary policy board meeting for 2012.
And there is a good chance the central bank will follow up its November and December cuts in the cash rate with another 25 basis point reduction when it makes its rates announcement at 2.30pm.
This week’s awaited inflation numbers certainly won’t stand in the way of a third reduction to an official cash rate of four per cent if the central bank is worried about the outlook.
The consumer price index (CPI) data allowed Mr Swan to be more candid than usual about the outlook for interest rates.
“With underlying inflation sitting squarely in the RBA’s target band, it does create room for further interest rate cuts into the future,” he told reporters in his post-data media conference.
Mr Swan is not alone.
Economists generally expect a cut given that domestic economic data since the December board meeting has hardly been spectacular.
But probably more worrying for central bank governor Glenn Stevens and his board are developments overseas.
The International Monetary Fund (IMF) slashed its global growth forecasts again this week and predicted a “mild” recession in Europe.
“Financial conditions have deteriorated, growth prospects have dimmed and downside risks have escalated,” the IMF said in its World Economic Outlook Update.
“The most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area.”
It’s latest projections are predicated on the assumption that eurozone policy makers will increase efforts to address a continental debt crisis, and that most advanced economies outside the European bloc will avoid recession.
World growth is now forecast at 3.3 per cent for 2012, compared to the four per cent the Washington-based institution was predicting last September, and 3.9 per cent in 2013 rather than 4.5 per cent.
Overall, financial markets are pricing in a 60 per cent chance of a cut in the cash rate next month.
The central bank will draw comfort from the inflation results, which showed a sharp drop in fruit and vegetable prices as they return to more normal levels after the spike following last summer’s Queensland floods.
While there were other price rises to offset these, the CPI was unchanged in the December quarter from three months earlier, the best inflation performance in three years and during the depths of the global financial crisis.
The annual CPI at 3.1 per cent stands just outside the RBA’s two to three per cent inflation target band, after retreating from 3.6 per cent as of the middle of last year.
The central bank had expected a year-end rate of 3.25 per cent in its last spread of forecasts released in November.
The more crucial underlying measures of inflation, that show whether price pressures are becoming embedded in the economy and steer the central bank’s thinking on rates, were a shade above the centre of the target band.
RBC Capital Markets strategist Michael Turner expects underlying measures will moderate to the bottom half of the target range over 2012 as wage inflation eases because of a softening labour market.
“This clearly affords the RBA some scope to ease further,” Mr Turner said.
The big question is how much, if any, the retail banks pass on of an official rate move given their concerns over funding costs because of the European debt crisis.
Mr Turner does not expect the major banks to pass on a 25 basis point rate reduction in full and as such is anticipating a further 50 basis points of official rate reductions over the next six months or so.
While Mr Swan may usually be reserved about predicting rate decisions by the RBA, he’s not so shy when discussing the banks, and has already made it clear he won’t be cutting them any slack.
“I’m sorry, they are at record levels of profitability. They have a return on equity which is virtually unequalled by any other bank in the world,” he said in response to a journalist’s question.
“There would be a lot of people out there in Australia who will judge them harshly if they take actions that they deem to be unreasonable in the current environment when they are so profitable,” Mr Swan said.
Fiery parliamentary debates, bank bashing – you get a sense of deja-vu for 2012.
