Thursday, 19 April 2012

Gillard, Interest Rates, the RBA and the Liberal Party

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Here we go again.  Today has seen some narrow and biased analysis of economic policy and political imperatives concerning the Prime Minister Julia Gillard’s comments on the economy, interest rates and the Budget.
Gillard’s words boil down to the point that having tight fiscal settings in a climate of on-going unbalanced economic growth will allow for easier monetary settings which in turn will stem the rise of the Australian dollar.  It’s actually the best policy mix when a country has a terms of trade shock which leads to excessive currency strength and risks exacerbating internal imbalances within the economy.
Before Gillard uttered a word on the issue, people like tin-man Christopher Joye, executive director and strategic advisor to Yellow Brick Road Funds Management and Rismark International, continued to push his empty barrow of the politicisation of the RBA.
I don’t think Chris actually read the speech or reporting of it with an opening comment that:
  • “The Prime Minister has broken with historical convention–for an incumbent government–and called on the RBA to lower interest rates
Well Chris, the Prime Minister neither said nor implied anything of the sort.  Here is what she did say at various times during the speech:
  • The RBA has “plenty of room to move further if need be”.
  • “we can give the Reserve Bank room to move on monetary policy if it chooses to
  • “In the current economic environment, should the RBA consider it appropriate to change the cash rate [it can move]”
Any observer can see that all that PM Gillard and the government is seeking is a shift in the balance of economic policy towards tighter fiscal policy and easier monetary policy.  And PM Gillard has made it crystal clear that the independent RBA may choose, if need be and if it considers it appropriate, to ease monetary policy some time down the track.

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