The Herald quotes John Key:

“We’ll be looking, like others, to see what the Reserve Bank governor does on Thursday but we would be anticipating significant rate cuts,” he said.

I’ve noticed that as Opposition Leader, John would often predict or even suggest what the Reserve Bank will do with the official cash rate. It was an annoying habit in Opposition, but a bad habit to keep going in Government.

In some ways the PM is just stating the obvious. Even the stupidest first year economics student knows that the Reserve Bank will cut the cash rate on Thursday. The only debate is by how much.

So, to be fair, when the PM says he is anticipating significant rate cuts – he is speaking literally – he is anticipating cuts, like everyone else.

But he is not like everyone else. He is the Prime Minister. And it is unwise to carry on a commentary on what you think the Reserve Bank Governor will do, when you hold that job. Because sooner or later it will be interpreted as pressure. It will be seen as trying to indirectly instruct the Reserve Bank – even if that is not the intention. It will one day generate negative headlines when the PM predicts one thing, and the Reserve Bank goes the other way.

Here’s my preferred responses for a PM on what the Reserve Bank will do:

Well the Reserve Bank makes it own decisions on the cash rate, and I don’t think it is helpful for me to speculate – I’ll leave that to the bank economists.

As I said above, it isn’t a big issue this time, because it clearly wasn’t a comment to pressure the Reserve Bank – it was stating the obvious. But in future the circumstances may be different, and best to bury a bad habit early – in my opinion.

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