Central Banks

Did RBA’s Stevens break the central banker code?

Aussie dollar sinks on RBA Stevens' comments

The seemingly unshakable code of central bankers everywhere avoiding public references to where interest rates will go next may have been broken by the top dog at Australia's central bank.

"The whole street had started pricing in interest rate cuts in 2015 and he's put the kibosh on that," said Jeffrey Halley, senior manager for foreign-exchange trading at Saxo Capital Markets.

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In an interview with the Australian Financial Review, Glenn Stevens, governor of the Reserve Bank of Australia, strongly suggested interest rates, already at a record low of 2.5 percent, aren't likely to move anytime soon.

"If you think that confidence is the thing that is kind of the missing ingredient [for Australia's economy], then what can we do for confidence? The answer that I came up with is we could be steady and predictable and be clear about that," Stevens said, according to a transcript of the interview.

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Stevens also made a move to jawbone the Australian dollar down, saying he would like to see it fall to $0.75, marking a significant drop both from the current level of around $0.8250 and from the $0.85 level he's advocated for around a year.

No poker face

Because of their power to cause sharp market swings, central bankers usually play these sorts of cards close to the vest, offering only oblique references to their plans.

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Stevens' comments were certainly a surprise, said Katrina Ell, associate economist at Moody's Analytics.

"He certainly poured water over the idea of near-term rate cuts, which I think was necessarily because of the momentum building [after] disappointing GDP (gross domestic product) data," she said, adding the most likely scenario is now for rates to be on hold next year.

Australia's GDP rose 2.7 percent on year in the third quarter, compared with the 3.1 percent forecast from a Reuters poll, spurring market expectations an interest rate cut would be in the offing.

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But Stevens' comments indicate the central bank may be looking through that data.

"The main point is that they don't see the economic growth in Australia is as bad as everybody is saying in the market," Halley said, noting that much of the weakness comes from mining sector. Australia's economic data has also produced some positives, with data last week showing it added more jobs than expected in November, although some analysts noted that was primarily on part-time, not full-time, positions.

Ell also pinpointed the non-mining sectors as more likely to drive any central bank moves.

"If the non-mining sector is underperforming, then we could be looking at rate cuts in the middle of next year, but we won't have a good idea until we get data early next year," she said.

That Aussie call

But what about that call for the Aussie dollar to drop sharply?

There may be some irony there, with Halley noting that ruling out rate cuts may actually support the Aussie dollar.

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"If he's not lowering interest rates at the same time, it will struggle to get [to $0.75] anytime soon," Halley said, although he noted the level is not outlandish as it's around the currency's long-term average since it was floated in 1983.

Moody's Ell also doesn't see the level as a particularly radical call, citing the downward pricing pressure on one of the country's key exports: iron ore. She's also watching for the U.S. Federal Reserve's moves ahead, with expectations of a rate hike there likely to further dampen demand for the Australian dollar.

"We have the Australian dollar heading to about 80 cents mid next year. It's likely it could be below that by mid next year if the U.S. possibly kicks off as we think it will," she said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter