Here's why it's probably better if the RBA doesn't cut rates today

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The will-they, won’t-they continues as we await the results of this morning’s RBA Board meeting today at 2.30pm AEDT.

The debate is somewhat arcane in that, based on market pricing, there seems to be a growing consensus that the RBA will ease rates at some point this year – probably twice.

So in many ways whether or not they move rates today is of no material impact to the economy.

There is also little doubt that in the two months since the last RBA meeting the global economic outlook has deteriorated, central bankers around the world are acting in a self-interested manner to try to get their currencies lower and their economies moving and markets, and the price of Australia’s big bulk exports has fallen again.

So, given their track record of solid stewardship of the economy it would be strange if the RBA doesn’t do something today: the question is whether it comes in the form of words or action.

Veteran market watcher John Craig, who was a senior player in money markets when I first joined back in the late 1980s, and has forgotten more than most traders and investors will ever learn, reckons the RBA will hold.

In a note to clients this morning Craig argues it would be a big departure from previous advice for a move to be made today:

In a Hobart speech last year and in his interview in the AFR in December the Governor suggested there would be at least an official warning that the period of stability might be coming to an end.

Under transparency efforts to keep markets informed of potential changes, the RBA has used the February meeting and resultant statement to herald in change in each of the past three years.

On the subject of RBA officials providing selective insight to market commentators the RBA has said that does not happen, to the Governors knowledge.

As a result he believes the RBA will hold rates at 2.5%, “but open the door for a near term cut, which should be forthcoming in March.”

So cutting or not today doesn’t matter: by signalling they will cut the RBA can actually build momentum in the economy, by promising and then delivering.

Indeed not cutting today could be the best economic outcome the RBA can deliver.

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