What a funny few days in the world of high finance.
Over the weekend we had the European leaders preparing a $2.8 trillion rescue package for its banks and basically promising to do “whatever it takes” to keep the European Union from crumbling.
We had an up and down night on Wall Street, although falls in commodity prices suggested that trouble was ahead for the Australian market this morning. And then, lo and behold, the Australian market opened up 1.5%. Talk about a hard situation to read!
But the little bounce on the market hasn’t been enough to convince Coalition finance spokesman Andrew Robb from declaring that the Australian economy is in a big hole.
On the back of bad news out of Europe, Robb has launched what may well turn into an Opposition campaign for an interest rate cut.
“I think there is a case for the Reserve Bank to now start to cut interest rates because the economy is already starting to tank in various areas,” he told ABC Radio.
“Some of our sectors are technically in recession now.
“The government has got to recognise it and I think the Reserve Bank should recognise it.”
The Government has accused Robb of “talking down the economy” and certainly recession is a strong word when most forecasters are tipping strong local and global economic growth next year (as economist Adam Carr argues this morning).
But Robb knows he is on pretty safe ground here – who wants to be seen arguing against an interest rate cut?
No-one…except maybe the RBA, which has consistently indicated that while it is concerned about the situation in Europe and the United States, it does have worries about the longer-term outlook for inflation in Australia.
Those inflation worries may ease if a new crisis emerges and rate cuts may be on the way. Right now, the bank seems content to remain on the sidelines, knowing it has plenty of flexibility to cut if needed but not wanting to hurry into such a cut which it will have to quickly reverse.
I’m happy to leave this one to RBA Governor Glenn Stevens and his board to work out – and I’m not sure they need a lot of help from an opportunistic Andrew Robb, quite frankly.
But it will be very interesting to see if the Coalition uses the growing global financial woes to turn interest rates into a big issue on which it can campaign.
If the economic data in Australia does show signs of weakness, expect rates to be firmly back on the political agenda.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
