Prime Minister Kevin Rudd has accused Opposition Leader Malcolm Turnbull of irresponsibility for contradicting the Reserve Bank governor about the financial crisis. Mr Turnbull today appeared to criticise Glenn Stevens’s choice of the words when describing Australian banks’ position in relation to troubled overseas institutions.
The question we want answered is whether the growth slowdown under way will be another mid-cycle correction as in 1996 and 2001, or alternatively the long-predicted business cycle recession, last seen 17 years ago in the recession we had to have? Unfortunately corrections and recessions can look similar in their initial stages.
Prime Minister Kevin Rudd said the cut in official rates would be welcomed by Australian households that were now battling high mortgage rates and petrol prices. “This will provide some relief, some modest relief, but there is much more to be done helping families deal with cost of living,” Mr Rudd said.
It would appear that some RBA board members were concerned that, while inflation remained high, the risk of a wages breakout was still prominent. There were two main arguments that the board grappled with: one, naturally, was the weakening growth prospects and the likelihood of a very weak set of national accounts.
The Reserve Bank board was told that the next set of economic growth numbers for the June quarter, published early next month, would be weak and show the economy’s slowdown could become too rapid. “On these considerations, a case could be made for an early reduction in the cash rate,” its monthly statement said.
The Federal Treasurer today agreed that Australia’s financial institutions are “certainly independent” of the government. “But… when the official interest rate goes down… then borrowing costs should follow, it’s really that simple,” he told ABC Television.
If the banks ignore all the free advice about how easily they can afford to pass on an official interest rate cut, the Rudd Government will find itself under pressure to find some way to make good on its threats.
The nation’s lenders have in the past year lifted interest rates faster than the Reserve Bank, taking the standard variable mortgage rate close to 10 per cent, as the fallout from the sub-prime crisis in the US raised their own cost of borrowing funds.
Underscoring the Rudd team’s pre-election hints it could actually do something about the rising cost of living, the government is promising to introduce some reforms designed to improve competition amongst supermarkets. But the main drivers of inflation in the grocery sector are issues the government has little or no control over.
Following yesterday’s board meeting, Reserve Bank governor Glenn Stevens announced the bank’s new position in a prepared statement. “The board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing,” it read.