Could Israel hold the key to next week’s Australian decision about interest rates?
Martin Whetton, an interest rate strategist at Nomura Group thinks so. He says Australia’s Reserve Bank has followed the lead of Israel’s central bank on 16 or the past 19 occasions it moved rates.
The Bank of Israel has just cut rates for the third consecutive meeting. If Australia’s Reserve Bank cuts on Tuesday week it’ll be the third consecutive occasion.
Asked why the two should move in unison and he and some of his colleagues take the relationship seriously, he is momentarily stumped.
“It can’t be because we both have masses of resources,” he says. “But we are both small open economies, able to navigate our own ways in the world.”
“And there are the backgrounds of the people involved... Israel’s Stanley Fischer got his doctorate in economics from the Massachusetts Institute of Technology. Two of the assistant governors under Australia’s Glenn Stevens got their doctorates from MIT.”
“People from MIT seem prepared to go against the consensus. Both Australia and Israel reacted extremely quickly the global financial crisis. Each moved from tightening rates to pushing them down in a matter of months.”
“Fischer and Stevens are each conservative in that they manage the economy in a conservative way, but they are not bound by conventional wisdom. They are prepared to run their own race.”
Mr Whetton says each is looked to by traders in the US for guidance as to what a forward-thinking bank governor would do.
“It is case of each being independently ahead of the game. I don’t know what relationship they have personally - I couldn’t begin to speculate. I doubt if they phone each other before meetings.”
Stanley Fischer is a former World Bank chief economist and deputy managing director of the International Monetary Fund. He last week denied reports he was interested in seeking Israel’s presidency after Shimon Peres steps down in 2014.
"I feel lucky in being governor of the bank," he said. "As an economist for many years I believe the career and personal track that I have chosen does not necessarily train me to serve as President.”
Glenn Steven’s term of Governor of Australia’s Reserve Bank expires in September 2013. Next month assistant governor Philip Lowe moves into the number two spot as his deputy governor - traditionally a staging post for the top job. He got his doctorate from the MIT.
Published in today's Cnberra Times, SMH and Age
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