Rates decision reflects high levels of government spending

Given that Jim Chalmers will not resile from the government’s spending intentions, is it any wonder that the RBA cannot act responsibly if it cuts the base rate (“Shock and disappointment for some, but discretion wins out”, 9/7). The tragedy is in the plight of mortgaged households and struggling small businesses – not the disappointment of the Treasurer, who had his reward in the rate cut just before the federal election.

Judith Sloan rightly passes over “uncertain global economic conditions” as a major factor in this recent decision, but productivity decline and the uncertainty of any positives from the August reform roundtable remain a factor.

We have just seen a government re-elected with the intention of maintaining its disastrous energy policy, its promise of free childcare and practice of energy rebates for all, regardless of income, and a slashing of HECS debts. The only areas of spending restraint seem to be in defence and national security.

With only the blunt instrument of the base rate at its disposal, the RBA has no other option in fighting this homegrown inflation, almost totally fed by government spending.

John Morrissey, Hawthorn, Vic

What a relief that the RBA is “looking very actively at what is not driving productivity”. Surely the top of the list should be the cost of electricity caused by fairytale fantasy renewable energy.

Deirdre Graham, Moss Vale, NSW

RBA governor Michele Bullock is signalling that she appreciates the risks of a tight labour market, a government running unsustainable surpluses, the possible consequences of a tariff war and the fact there is a tsunami of government-supported wage increases such as the increased minimum wage that are yet to work their way through the economy.

The next decision may be a hold or even an increase.

Chris Taylor, Dernancourt, SA

Mortgage holders will not be content with the steady-as-she-goes approach by the RBA towards interest rates. Governor Michele Bullock displayed great courage and clarity throughout her official press conference.

I would have preferred an interest rate cut on behalf of all mortgagees but I put more trust in Bullock’s team than Jim Chalmers’. The six-to-three split is interesting and one wonders if adding members to the RBA board was an initiative of Chalmers to force an interest cut rate that failed.

Peter D. Surkitt, Sandringham, Vic

Reserve Bank governor Michele Bullock isn’t easily bullied. She would be a formidable poker or chess opponent were she not resistant to playing games.

Susie Boswell, Port Macquarie, NSW

Those with mortgages would have been better off with inflation at 8 per cent and mortgage rates at 2.5 per cent, as was the case in early 2022, than now, with inflation at about 2.5 per cent but rates at 6 per cent.

Simple arithmetic and basic economics show that lower rates are better for most people. The RBA has in its mission statement “the economic prosperity and welfare of the Australian people”, but higher rates demonstrably don’t produce that outcome. Renters are not immune as they are tied to rates through landlord/owner loans. The “cure” of higher rates for the supposed terrible inflation beast is worse than the disease itself.

James McCarthy, Nailsworth, SA

The RBA is driving the country’s economic vehicle looking at the rear-view mirror instead of through the windscreen. There is about an 18-month lag between a change in interest rates and the effect on the real economy.

The RBA boffins surely know this, yet the board cannot bring itself to take a risk after the previous debacle of missing rising inflation signs. The bigger risk is that by delaying justified rate cuts, when inflation is falling all around the world, they cause unnecessary pain to mortgage holders and stunt real growth prospects for many businesses.

Tom Williams, Albert Park, Vic

Most of the RBA board voted for prudence over populism. They are worried, with good reason, about stalled productivity and the lingering effect of the government’s profligacy. The Treasurer should stay in his lane and allow the RBA to do its job.

Kim Keogh, Claremont, WA