Leaning on the bank
Today’s Fin reports that Howard, Costello and Vaile are all leaning on the Reserve Bank not to raise interest rates at its Tuesday meeting. Howard and Costello are arguing that the Bank is obliged to focus on headline rather than underlying CPI movements, while Vaile is claiming that there is a convention of not increasing rates during a campaign. Costello’s warning of an economic tsunami heading for our shores can be seen as more of the same.
This seems both desperate and self-defeating. After the inflation figures, the government’s best hope was that the Bank would share the view that the uncertain global situation made a rate increase undesirable. Ideally, some hints to this effect from the Bank would promote the view that we should stick with the economic managers we know. But now, any such decision will be seen as buckling to government pressure. That makes it more likely that the Bank will raise rates, and ensures that, if they don’t, it will be a political negative for the government.