Give Howes a break
by Peter Switzer
Paul Howes was right and Penny Wong was wrong on the Reserve Bank but I never thought I’d ever write these words. And I reckon Howes has been unfairly bagged by the mob of minders who fall over themselves to protect RBA boss Glenn Stevens.
Howes, who heads up the Australian Workers Union, argued the Big Bank had consistently “made the wrong call” on interest rates this year. Many respected economists would agree with him, though they’d argue more politely.
AMP Capital Investors’ Shane Oliver thinks the RBA has missed opportunities to cut rates. So does CommSec’s Craig James and Westpac’s Bill Evans. This rate call stuff is very subjective but Howes has credible supporters.
And there are also a lot of smart market experts who think lower rates would help the dollar slip, say below parity, which would help exporters, import-competing industries and some dollar sensitive stocks.
Lower interest rates could easily encourage consumers to spend and borrow, which could help housing. New home sales rose in February by three per cent but this was from 11-year lows.
Meanwhile, housing lending was up 5.3 per cent on a year ago but this was the weakest annual growth in 34 years. If new home building reacted to lower interest rates, it would help manufacturing and AWU employees.
Howes recommended the central bank should cut rates to push the dollar down but he did not say it had to go to ridiculous levels. He is not alone with this argument.
The union boss, who I often disagree with, also pondered why it is akin to heresy to criticize the RBA and its governor. I respect Stevens but I don’t agree he is has papal infallibility.
In early 2008, he was raising interest rates and I was giving him a bollocking, along with the likes of John Hewson, Bernie Fraser and doomsday academic economist, Steve Keen, from UWS.
In the past, I quoted Phillipa Malmgren from the Canonbury Group in the UK, who told me that the RBA would soon have to turn on a dime and change their policy. The Bank was wrong but they got it right in October 2008, when they chopped by one per cent, taking the cash rate from seven per cent to six per cent.
That was dime turning stuff but about 10 months too late, but they did get it right after that, until 2011. And that’s where you could argue they have been off their game. That’s why they went for two desperate rate cuts in November and December last year.
Finance Minister Penny Wong quite rightly said the Government won’t accede to Howes’ request to interfere with the RBA’s charter but she got it wrong when she argued “the current settings (of the RBA) have served Australia well”.
I reckon past settings have been largely good but the current ones could be better — miles better. Ask Tasmanians where unemployment is now seven per cent.
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Published on: Tuesday, April 17, 2012