Labor stares down ultimatum demanding RBA cuts rates
A plan to steamroll the central bank and force it to cut interest rates has been branded a “crazy economic ultimatum” and a threat to its independence.
The Greens are blocking Reserve Bank reforms until it lowers interest rates, calling for the treasurer to use an extreme stick at his disposal and force a rate cut – something the federal government has explicitly ruled out.
Finance Minister Katy Gallagher said this was a populist policy that would damage Australia’s economy in the long run.
“It’s just crazy,” she told reporters in Canberra on Monday.
“It’s ridiculous that after 30 years of stable, good economic architecture in this country, they would be seeking to undermine that.
“They’re out craving votes, they’re not actually serious about any economic policy or economic reform.”
Labor’s proposed reforms, backed by the RBA, are dead in the water without a deal with the Greens or opposition.
The reforms would split the central bank’s board into two, so one could focus on monetary policy and the other, internal administration.
They were recommended in an independent review commissioned by former Liberal treasurer Josh Frydenberg.
The opposition has dealt itself out, arguing the treasurer could stack the monetary board with union officials.
Greens economic spokesman Nick McKim was unapologetic about his position despite flagging working with the government to pass the reforms.
The RBA uses its interest rate lever to put the handbrake on the economy when inflation is too high, with it currently above the target of between two and three per cent.
Senator McKim said he didn’t care whether the treasurer used his big stick to force an early cut or the central bank governor made the decision to slash the cash rate herself.
Governor Michele Bullock has flagged rate cuts as unlikely in 2024.
The government’s power to overrule the central bank has never been used.
High interest rates were robbing Australian mortgage holders in a cost of living crisis and flowing into the the banks’ already “eye-wateringly large profits”, Senator McKim argued.
“It’s time for significant action, it’s time for significant relief,” he said.
The Greens would then back the reforms in their current form so long as Labor retains both the power allowing the treasurer to overrule the bank and a separate clause allowing the RBA to direct money to productive parts of the economy.
The RBA is meeting on Monday and Tuesday to determine whether it will drop interest rates ahead of monthly inflation figures on Wednesday.
The 4.35 per cent cash rate is tipped to remain unchanged.
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