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Thursday, July 04, 2013

Careless Talk Costs Dollars

The Australian Dollar plunged to a three year low following a "light hearted slip of the tongue" by Glenn Stevens the Governor of Australia's Reserve Bank.

His crime?

In a "Ratner" moment Mr Stevens said in a speech on Wednesday that the bank’s board “deliberated for a very long time” before leaving the cash rate steady at its monthly meeting on Tuesday.

This comment caused the dollar to drop to US90.37 cent, and prompted some bank economists to change their forecasts and predict an interest rate cut in August.

In a damage limitation exercise the Reserve Bank insisted that the comment was “light-hearted”, this in turn lifted the dollar and prompted banks to withdraw their revised forecasts.

The bank’s deputy governor, Philip Lowe, was quoted by the Telegraph saying that the financial markets and the media had “misinterpreted” the comments, which were not supposed to be taken seriously.
"They were meant to be a light-hearted remark after what, he [Mr Stevens] reports to me, was a very light-hearted introduction.

I can confirm for you that the board did deliberate for a very long time. I can also confirm for you that it always deliberates for a very long time.”
Professionals such as Mr Steven should know that financial markets do not posses a sense of humour, especially in the current febrile atmosphere!

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