Years ago Pete Townsend of The Who wrote a great anthem, Won’t Get Fooled Again, it’s safe to say there are a lot of folk in the financial markets (and politics) who will be quietly humming the tune, if they know it, ahead of a speech Monday morning by Reserve Bank governor Glenn Stevens.

His speech in Canberra at about 11.30am is to the influential Australian Industry Group. They are the mob to whom interest rates and the value of the dollar are top of the list issues at the moment.

The reason The Who’s driving ditty comes to mind is that the last time the guv appeared in public in Shepparton last month, his comments on the economy and inflation morphed into the now classic “Rate rise looms” analysis ahead of the October RBA board meeting.

We now know that the RBA didn’t do anything at that meeting except leave rates steady, much to the chagrin of the banks. That left egg on face around the markets and quite a few losses on bank trading books (Westpac especially, from rumours), and the odd analyst has traded on their no rise calls and forecasts, further adding to the chagrin among their peers.

And yet this week’s release of the minutes of that meeting make clear that a rate rise it was a close-run thing. In fact, the phrase “finely balanced” was used. And with three private members of the board absent, it was felt that a rate rise could have happened had they not had a leave of absence.

It wasn’t the bank sitting back, it was the board thinking, just not now.

The minutes also gave us an inflation target for the bank for the September quarter CPI, out next Wednesday (and after Stevens’ speech on Monday). That target is a year to annual headline rate of  about 3% (3.1% in the June quarter) and an underlying rate in the range of 2.5%-2.7% (2.7% in the June quarter). The minutes also acknowledged that rates will have to rise at some stage if the economy grows according to forecast, and that rates will be increased sooner rather than later.

And if inflation comes in at the RBA’s target, will the board sit. And what message has Stevens in Monday’s speech?

So it’s “Rate rise looms” for the November 2 meeting, according to the early adapters among business economists, analysts and market forecasters. And there’s some waiting back and wondering if there’s a message for the November 2 meeting to be discerned from the speech. China’s rate rise this week has made some commentators more anxious.

The week of the RBA board meeting sees the last Statement of Monetary Policy for the year released on the Friday, which will carrying the bank’s new forecasts for 2010 and harder forecasts for 2011 and 2012, the outlook for growth, and especially inflation, will tell us a lot about the way interest rates could evolve in the coming year. Those forecasts will be given to the November 2 board meeting for discussion and will underpin the rate decision.

And if that’s the case, some in the markets ask why is the guv speaking before the board meeting, and not after? Well he is also speaking after the meeting (and after the Fed meeting on November 2-3).  Stevens has another speech, in Melbourne this time to an equally influential business group, CEDA (the mob who favour the economic development of Australia). That’s on November 29.

Splitting the two Stevens speeches is an appearance by his deputy, Ric Battellino, in Perth on November 18. That will be Battellino’s third appearance since August,  Stevens’ two speeches will mean he has three appearances in as many months.

Tea-leaf reading is hard at the best of times.

Peter Fray

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