Australia's central bank is expected to cut interest rates against. Picture: Brendon Thorne/Bloomberg
Australia's central bank is expected to cut interest rates against. Picture: Brendon Thorne/Bloomberg

Rate cut to spark economic brawl

COMMENT

The Government and the Opposition will be in lock-step demanding banks immediately lower the cost of loans should the Reserve Bank cut official interest rates tomorrow.

Both sides will want consumers to have the opportunity and confidence to borrow and spend to perk up the economy.

While it is widely expected the central bank's board will shrink official rates to 0.75 per cent - with another cut possible before next year - a downwards move is also expected to spark a renewed brawl over economic management.

After that rare moment of accord on benefiting borrowers, there will be significant differences should rates slump further to unprecedented levels in the modern Australian economy.

The Government will favour an argument, canvassed recently by the Reserve Bank, that Australia has to maintain a relativity with other national economies where rates have rapidly gone down.

Treasurer Josh Frydenberg today pointed to that as a consequence of a global downturn.

A rate cut would further reduce the value of the Australian dollar and so make our exports cheaper.

 

 

And in the longer term, over about 12 months, the rate cut could pep up the economy, with Mr Frydenberg saying no additional stimulus would be needed beyond what the Government had already announced.

He said rate cuts were not the only mechanisms the Government was using to keep the economy moving and there were infrastructure projects "creating jobs right now as we speak" with more to come over a decade.

"There are a lot of things that have already been underway…in the Australian economy which will continue to see us grow," he said.

Labor's shadow treasurer Jim Chalmers today most people who heard Mr Frydenberg talk about the economy would conclude he was "hopelessly out of touch" with the condition of the domestic economy.

He told Sky News: "The Treasurer wants to pretend that everything is hunky-dory in the economy or that if there are challenges that they are being imposed on us from overseas.

That is a very dangerous complacency that he is exhibiting again.

Shadow Treasurer Jim Chalmers. Picture: Lukas Coch/AAP
Shadow Treasurer Jim Chalmers. Picture: Lukas Coch/AAP

"And if rates are cut tomorrow it will be because the (Prime Minister Scott) Morrison government doesn't have a plan to turn the floundering economy around."

Labor will insist the cuts would be a further indication the economy is so week it needs an emergency transfusion of cheap loans.

There also is debate over the effectiveness of rate cuts and whether the RBA can stop at two more.

As the United States moves to lower the value of its dollar, the effect is to negate a fall in the value of the Australian currency, which could offset any attempts to make our exports cheaper.

Further, a reliance on interest rate cuts is being challenged as is the Government assurances that its infrastructure spending and earlier tax rebates would keep the economy pumping away.



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