The RBA Gets Caught Telling Porkies

The Reserve Bank of Australia has been “talking down” the Australian dollar for the last 12 months. They have threatened direct intervention but refrained. They have cut Interest rates to historical lows, to the point of exhaustion. It is still their opinion that the Australian dollar is too high.

In December, the RBA Governor Stevens in an interview with the Australian Financial Review said “I thought 85 cents would be closer to the mark than 95 cents”. At the time, the Aussie dollar was trading at 90.58c and immediately dropped to 89.81c on the comment. Similarly on January 24 this year, Helen Ridout, an external RBA board member, commented to the Wall Street Journal that “a Dollar around 80 cents would be a fair deal for everybody… I don’t think it has fallen far enough.”

Central bankers rarely put numbers on the level of the exchange rate. If they do, they should have good reason to justify their comments. Whether it is 85 cents or 80 cents that the Reserve Bank of Australia sees as the value of the currency, they need to point to evidence in support of their claim…

Can you imagine the market’s surprise therefore, when yesterday it was discovered that the RBA’s own internal quantitative modelling in December had concluded that the Australian dollar was “… close to the level consistent with its medium-term determinants.”? At the time, the Australian dollar was above 90 US cents.

Gov Stevens and board member Ridout comments’ were made in full knowledge of this internal assessment, yet they deliberately ignored their own official view and basically lied in order manipulate the currency lower. Were it not for the Freedom of Information Act, the truth would never have surfaced. (Exactly who tipped off the press to file a Freedom of information request is unknown, but it would seem that someone inside the RBA is particularly upset by the Board’s external comments being at odds with internal research)

Central Banks are the guardians of the financial system and Central Bankers strive to maintain their reputation for the highest integrity. Governor Stevens and Board member Ridout have breached this code. If you can’t trust a Central Banker, who can you trust?