It’s good news, the RBA finally wakes up
The RBA should have lifted rates late last year but it’s good news it has finally started to do its job now, even though the hike could have been bigger.
Terry McCrann
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The Reserve Bank’s rate rise is unambiguously a ‘good news story’.
It would have been very bad news, on so many fronts, and really quite disturbing, if the RBA had not raised – indicating either political pusillanimity or, frankly, gross incompetence.
The way the man who would be treasurer in an ‘Albo Government’, Jim Chalmers, seized on it to launch a political attack was appalling.
It showed he either didn’t understand what was happening in the economy or he embraced the Paul Keating style of being prepared to trash the public interest for perceived political gain; or, likely, both.
Either way he was announcing, just like both the wannabe-PM and the wannabe-deputy PM have already done, that he’s just not up to the job.
I can’t recall, even going back to the Whitlam period in the 1970s, a situation where the top three people in a putative government have all shown themselves – at least, they did so ahead of the election – as, bluntly, not up to it.
The core reason why the rate rise is good news is that it shows the economy running strongly – and surely, one would have thought, that is good news, even to a Labor opposition desperate to win?
As RBA governor Philip Lowe emphasised yesterday, the lowest jobless rate in decades of 4 per cent was both extraordinary, given the last two years, and entirely welcome.
The exact rate was actually less than 4 per cent, but got rounded up to 4.0 rather than down to 3.9 per cent.
Secondly, it’s good news that the RBA has finally caught up with the inflation challenges that this strong economy causes – especially in the context of all those external inflation pressures from the war in Ukraine and the Covid-caused supply chain disruptions.
The RBA should have made this first hike in February, after the – threatening - December quarter inflation data, or in March after ‘signalling’ in February.
Indeed arguably, it should have started late last year - doing what it used to do: hike into rising inflation or cut into falling inflation and rising unemployment.
It’s good news that we now have the RBA at least starting to do its job, albeit it should have started with the 0.4 per cent as I’ve argued.
As Lowe put it yesterday, it’s embarked on ‘normalising’ it’s official interest rate.
He nominated 2.5 per cent – to match the aimed-for and expected 2.5 per cent inflation rate.
That’s expected – hoped-for – by the RBA.
But just as the RBA didn’t see the rising inflation into 2022 – before Russia’s attack on Ukraine sent oil, gas, food and fertiliser prices surging - so, I suggest the RBA will be wrong about inflation falling, so conveniently, into 2023.
But yes, again, ‘normalisation’ of rates is entirely desirable.
The 0.1 percent – and all the RBA’s money printing, which it will now slowly unwind – was all about, was only justified by and appropriate during, the Covid emergency.
The emergency is over; indeed it was over so far as the economy was concerned by September last year. That’s when any need for – or indeed justification of - emergency monetary policy ended.
These artificially imposed ultra-low rates act as a fundamental distortion in the way the economy functions and people – both as individuals and as businesses – make investment decisions.
It’s grossly overloaded money pouring into property.
With the official rate at just 0.35 per cent and basic bank variable home loan rates likely to go only to around 2.5 per cent - still way below the 5 per cent-plus inflation rate – these distortions are still rampant.
You cannot build a sustainable strong economy – and you certainly cannot sustain a jobless rate at even 4 per cent – on such distortions.
Originally published as It’s good news, the RBA finally wakes up
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